Canada Inflation Hits Homes, Autos

by : Anthony Fontanelle

Canada's core consumer prices increased by 2.5 percent in June, up from 2.2 percent the previous month, due mainly to higher home and vehicle costs, Statistics Canada announced last Wednesday.

The rate was unchanged on a month-on-month basis, reported CanWest News Service. From May to June, overall prices eased by 0.2 percent. Last month's raise in the core inflation rate, which excludes volatile items such as energy, is now at a four-year high, matching the level reached in April, the report added.

The Bank of Canada is utilizing the core rate to monitor prices. And based on June's increase, it could further result in higher interest rates. Last week, the central bank hoisted its key lending rate by a quarter point to 4.5 percent. That was the first increase since May of the previous year. However, the bank said that it may need to tighten the borrowing cost again this year to keep a lid on inflation.

Despite the fact that the previous month's core rate was somewhat below analysts' expectations, it remains above the central bank's inflation target of two percent. "In the grand scheme of things, what this means is that the Bank of Canada is going to very much still have its finger on the tightening trigger," said Marc Levesque, the chief strategist at TD Securities.

"This is well above the Bank of Canada's target. We were saying there would be a rebound and that rebound did occur. This just continues to spell possible further Bank of Canada rate hikes," he added.

But analysts do not share same views about the matter. Douglas Porter, the deputy chief economist at BMO Capital Markets, has this to say: "The year-over-year comparisons get a bit friendlier for core CPI in the next three months, so this may mark the high-water point for the time being on that front. So, even while core inflation has now matched its four-year high today, the Bank of Canada is likely breathing just a wee bit easier today."

Statistics Canada said that the biggest pressure on prices continues to be housing and gasoline costs. "For a third straight month, costs associated with owned accommodation accounted for most of the increase in average price levels over 12 months," the agency said.

"Within this category, the component that contributed the most to the increase was mortgage interest cost, which rose 5.7 percent, the same growth rate as in May and April," the agency added. "It was the fastest rate of growth since January 2001. For the past several months, the growth in prices for new houses has been driving the sustained increase in mortgage interest cost."

Homeowners' replacement costs also contributed to the increase in consumer prices, Statistics Canada said. Costs rose 6.1 percent year-on-year in June, up from a six percent increase in May. "Also a factor, but to a lesser extent, was a 2.8 percent increase in costs associated with operating a vehicle," the agency said. This has greatly affected the sales of auto parts such as the .

Separately, automakers in Canada announced its plan to install anti-theft vehicle immobilizers in all new 2008 vehicles. The plan will be enforced on September 1, reported ExecDigital US.

Transport Canada will make it mandatory for all new cars, vans, light trucks and SUVs to be equipped with anti-theft electronic immobilizers, the report continued. Vehicles include Audi, DaimlerChrysler, Ford, General Motors, Hyundai, Jaguar, Land Rover, Mercedes-Benz, Nissan, Saab, Subaru, Volkswagen and Volvo.

According to the Insurance Bureau of Canada's 2006 listing of most frequently stolen vehicles, none of the top ten had an approved immobilizer. Auto insurers in Canada set rates based on claims.