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Wednesday, February 22, 2006

Inflation creeping

There is a threat to the economy and the real estate market. It may not be real yet but inflation is creeping up and that could affect the Edmonton and area real estate market down the road. It will certainly impact affordability with prices and interest rates following its lead as the Bank of Canada tries to reign it in. This article was posted by CBC news.

Higher energy prices drive inflation rate to 2.8%

Canada's annual inflation rate picked up steam to 2.8 per cent in January on higher gasoline and natural gas prices, Statistics Canada said Wednesday.

That's up six-tenths of a percentage point from December's 2.2 per cent rate and a slightly higher jump than what was expected.

Statistics Canada said gasoline prices rose an average of 19.2 per cent in the one-year period ended in January. Natural gas prices surged 26 per cent over the same period.

The agency points out that, excluding energy costs, the cost of living would have remained unchanged between December and January.

The core rate of inflation, which doesn't count volatile items like gasoline, natural gas, fuel oil, and fresh fruit and vegetables, edged up from 1.6 per cent to 1.7 per cent – still well within the Bank of Canada's target range of one to three per cent.

On a month-over-month basis, the federal agency said prices increased 0.5 per cent between December and January, the first monthly increase since last September.

"Increases in the prices of gasoline, natural gas and fresh vegetables were offset very slightly by lower prices for travel tours and men's clothing," Statistics Canada said.

Travel tour costs fell because of seasonally slow demand in January. Discounting by retailers, mainly in Ontario, led to the drop in men's clothing prices. Bad weather was responsible for a 12.4 per cent increase in vegetable prices, with tomatoes soaring almost 40 per cent.

Alberta, which is in the midst of an oil-led resource boom, has the country's highest annual inflation rate: 4.1 per cent. Prices in just the one-month period between December and January rose 1.3 per cent.

Statistics Canada had earlier reported that the average hourly wage in Alberta rose 7.4 per cent in the past year.

More rate hikes coming: analysts

Analysts say there's nothing in the report to dissuade the Bank of Canada from hiking interest rates at its next policy-setting date of March 7.

"Inflation is steady, but not overheating," BMO Nesbitt Burns economist Jennifer Lee said in a morning commentary. "The report is consistent with the [Bank of Canada] continuing to raise rates at a modest pace."

U.S. inflation surges

Inflation in the U.S. jumped by a bigger-than-expected 0.7 per cent in January, also on rising energy costs.

Analysts had been expecting a 0.5 per cent increase.

Excluding food and energy, consumer prices rose by a modest 0.2 per cent, matching expectations.


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