This is a post from Alex Carrick's blog that covers the Canadian construction industry.

Since 1985, Mr. Carrick has held the position of Canadian Chief Economist with Reed Construction Data's CanaData, the leading supplier of statistics and forecasting information for the Canadian construction industry.

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Construction Industry Forecasts

Notes from Alex Carrick - Feb 18, 2011

Alex Carrick
Canada’s January inflation maintains the positive economic environment

Statistics Canada has reported a slight easing in the nation’s inflation rate in January versus December. The latest year-over-year change in the all-items Consumer Price Index was +2.3%. In December of last year, it was +2.4%. To a similar degree, the core inflation rate which mainly omits volatile food and energy components dropped back to +1.4% from +1.5% the month prior.

There were notable price changes provincially. Nova Scotia (+3.0%) and Ontario (+2.9%) were the only two provinces to record gains higher than the national rate. Particularly highlighted as providing a spur to prices in Ontario were gasoline, passenger vehicle insurance and electricity.

Quebec’s year-over-year CPI increase of 2.1% was partly due to an increase in the provincial sales tax from 7.5% to 8.5% on January 1. The Quebec tax increase added about 0.5 percentage points to the provincial inflation rate and 0.1 percentage points to the national inflation rate.

The lowest price gain was recorded in Alberta. The cause was a natural gas market that is more volatile in that province than elsewhere in the country. In Alberta, natural gas prices in January were -24.2% year over year. By comparison, the country-wide decline in gas prices was 3.3%.

The January energy sub-index in the Canadian all-items CPI was +9.0% year over year with gasoline prices (+13.0%) as the standout. In Ontario, the gasoline price increase was +15.6%. Quebec, B.C. and Alberta were other provinces with double-digit gasoline price increases.

Food prices remained under wraps in January at +2.0% year over year. This will bear watching going forward. Leading indices of agricultural commodity prices, based on varying baskets of crops and livestock, have reached record highs internationally. North America has so far been cushioned thanks to still moderate prices for other components in the food chain – advertising, packaging and even transportation – and by fierce competition among grocery retail chains.

But there can be little doubt that higher food costs are coming. It will simply take time for them to work downstream. The same can also be said with respect to many other products. Major advances in metal and mining commodity prices are beginning to make their mark upstream.

January’s leading indicator index from Statistics Canada continued to be a source of optimism about the economy. The month-to-month change was +0.3%, the nineteenth such gain in the past twenty periods. Stock market activity and existing home sales led the most recent charge.

Icing on the cake for the economy has been provided by the turnaround in foreign trade. In December, Canada’s merchandise trade balance jumped to +$36 billion annualized after languishing near zero for the past two years. The pick-up was due to better energy exports to an American economy that is finally shaking off its lethargy and showing some muscle.

The Bank of Canada doesn’t want to be hasty in raising interest rates. With the Federal Reserve in the U.S. committed to essentially zero interest rates through the end of this year, raising the Canadian benchmark rate would provide more lift to the value of the Canadian dollar. That’s not what the Canadian manufacturing sector needs. It has been struggling to get back on its feet.

The Canadian manufacturing sector has actually been experiencing a bit of a renaissance. Year-over-year plant employment in January was +3.5%. Only in recent months have there been year-over-year job gains in the sector after mostly major declines through the 00s (2000 to 2009).

Statistics Canada’s survey of manufacturing sales activity recorded a 0.4% month-to-month rise in December. While this is good news for the sector, the pace of gain has slowed. Manufacturing sales surged post-recession from May 2009 and May 2010 and have leveled off somewhat since.

With rates so low, the BOC has been feeling a moral responsibility. Governor Mark Carney has warned Canadians about the dangers of taking on too much debt. Cheap monthly loan payments now may lead to unpleasant shocks in a couple of years after rates have been adjusted upward.

Ottawa’s recent moves to tighten mortgage approvals and the most recent declines in housing starts to only the 170,000 units-per-year level have alleviated some of the concerns in this area.

The latest inflation report makes the BOC’s decision about interest rates easier. With inflation still moderate, an upward adjustment isn’t mandatory at this time. Summer, not spring, is looking like the time for improved odds on when the next round of rate increases might be initiated.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News. Mr. Carrick also has a lifestyle blog that can be reached by clicking here.


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Read Other Recent Alex Carrick Posts

05/14 - Economic Nuggets - May 15, 2012
05/11 - Canada Rode a Second Consecutive Month of Strong Job Gains in April
05/04 - U.S. Employment Rose by a Mediocre 115,000 in April
04/27 - U.S. GDP +2.2% in Q1 2012 and Alberta led Canadian Provinces in 2011
04/18 - U.S. Inflation Low in March; Canada’s Central Bank Looking to Raise Rates
04/12 - Canada’s Trade Surplus in February Declined but Business is Optimistic
04/03 - A Tale of Two Budgets
03/29 - A strong year for new construction investment intentions in 2012
03/21 - Leading Indicator Series Add to Good News about the U.S. and Canadian Economies
03/06 - Three key trends, more forays into high-tech and the importance for construction
02/29 - Two important sources of strength: share prices and non-residential construction
02/22 - Home resale market may be picking up in the U.S. while flattening in Canada
02/16 - Good news on U.S. housing and employment is positive for Canada as well
02/08 - Home starts and job levels diverge in Canada and the U.S.
02/03 - Canada’s labour market flat in January but U.S. on a roll
01/23 - Canada’s leading indicator series continued to charge ahead in December
01/12 - 2012 holds promise but there’s no denying the uncertainty (part 2)
01/11 - 2012 holds promise but there’s no denying the uncertainty (part 1)
01/04 - How stock prices have performed depends on the timing of the data points
12/22 - Canada stands firmly in the middle of the road as it enters 2012

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