Canada ended 2018 with 2 pct inflation

Canada ended 2018 with 2 pct inflation

Canada ended 2018 with 2 pct inflation

Statistics Canada reported Friday that the cost of food went up by 2.9 per cent in the past year, while alcohol and tobacco products went up by 4.4 per cent. Shelter costs, driven by higher mortgage rates, increased by 2.2 per cent.

Canada's annual inflation rate rose to 2.0 percent from 1.7 percent in November as rising air transportation and telephone service costs offset lower energy prices, Statistics Canada said on Friday. A consensus of economists had expected inflation to register 1.7 per cent for December, according to Thomson Reuters Eikon. Analysts were expecting the same 1.7% increase as in November.

One of the biggest reasons why the overall rate did go up by more than it did was gasoline, the price of which fell by 8.6 per cent in 2018.

"While there's nothing here to drive the bank off the sidelines anytime soon, the underlying firmness in prices keeps them very much in play later this year", Doug Porter, chief economist at Bank of Montreal, said in a note to investors. Experience from the summer also suggests that the artificial rise in airfares will temporarily push up at least some of the Bank's measures of core inflation. Timelier data suggest that further falls in gasoline prices subtracted 0.2%-points from inflation in December.

Still, policy makers tend to look more closely at the core figures and those have stayed steady at near 2 per cent for more than a year. There also seems to be a statistical quirk around airfares, with Statistics Canada cautioning the numbers should be treated with caution because of calculation changes.

Bank of Canada governor Stephen Poloz kept his benchmark interest rate unchanged last week at 1.75 per cent as the economy navigates what he described as a temporary period of softness created by a recent, sharp decline in world oil prices. This gives the Bank of Canada scope to proceed with caution on further interest-rate increases, as it has been indicating.

Economists expect inflation will be held below two per cent for the better part of 2019 as oil prices aren't likely to climb back to the $70/bbl range seen in May through October 2018, he added.

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