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U.S. Dollar Approaches Par Value in Canada

March 19, 2010 by · Leave a Comment 

Canada’s core inflation rate rose beyond Bank of Canada expectations to 2.1% from 2% but the central bank is unlikely to move up its target date for raising interest rates, a top economist told The Toronto Star.

“This marks a number of months in a row where core interest rates were running faster than the bank expected,” said Douglas Porter, deputy chief economist with BMO Capital Markets.

“Underlying inflation has been a bit higher than the bank expected and combined with a lot of the strong data we have seen recently in Canada just ramps up the odds of the Bank of Canada starting to hike interest rates in the second half of the year (as expected),” he said.

Strong economic data has resulted in the dollar approaching 99 cents throughout the week and we could hit parity if retail sales figures also surpass expectations, Porter said.

“If they come in higher than expected, we could see the dollar taking a serious run at par,” he said.

The report showed that consumer prices in the Ontario were slightly above the national average during the last 12 months, due primarily to higher gasoline prices, passenger vehicle insurance and the purchase of passenger cars.

Friday’s Statistics Canada report indicated a 1.8% increase in consumer prices in Ontario, compared to a 1.6% increase across the country from February 2009 to February 2010.

Slowed growth was reported in all provinces, except for British Columbia, which reported an increase to 1.2%, compared to 0.7% the previous 12 months.

One unexpected contributor was the Olympic Games, which resulted in a 16% increase in the cost of traveler accommodation in February, the report showed. Porter said the Olympic effect on the Consumer Price Index (CPI) was a bit of a surprise.

Gas Prices on Upward Trend

Gasoline prices exerted the most upward pressure on prices for the fourth consecutive month, the report showed. In February, gas prices were 15.3% higher than the same month the previous year. The latest rise follows a 23.9% spike in prices in the 12 months leading to January.

Gas prices in February 2009 were considerably lower than they were in late 2009 and early 2010, the report showed. “However, gasoline prices have been relatively stable since July 2009,” it said.

Energy prices rose 4% during the period between February 2010 and February 2009, following na 8.2% increase in the 12 months prior. Excluding energy costs, the CPI rose 1.3% during the 12 months leading to February 2010, matching an increase in the 12 month leading to January.

During the 12-month period, six of the eight major measures of consumer pricing reported increase, excluding the shelter component and clothing and footwear.

  • The transportation component reported a 5.9% increase, following a 7.7% rise in January.
  • Driving continued to be a top expense, with consumer shelling out 7.9% more for passenger vehicle insurance premiums.
  • The cost of a passenger care also went 3.5%, following a 3.1% increase in January.
  • Recreation, education increased 3% in the 12 months leading to February 2010. Consumers also paid for traveller accommodation, cablevision and satellite services and the purchase and operation of recreational vehicles, the report showed.
  • Seeking entertainment at home proved a cheaper option, with prices dropping for home equipment, parts and services and computer equipment and supplies.
  • Food prices rose 1.2%, following a 1.4% increase in January. A 2.6% increase in restaurant prices was behind the upward pressure, as well as higher prices for dairy products and eggs, with a reported increase at 1.4%. Prices for fresh vegetables, fruit and meat fell.

The cost of running a house, furnishing and equipment rose 1.8% in the 12 months leading up to February 2010. The cost of health and personal care increased 3.2%, with prices for medicinal and pharmaceutical products up 1.9%.

Shelter costs were down 1.1%, mostly related to declines in mortgage interest cost and natural gas prices, the report showed. The cost of clothing and footwear dropped 2.6%, with women’s and men’s clothing leading the decline with a slight decrease recorded in children’s wear.

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