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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Notes from Alex Carrick - Jun 29, 2011

Alex Carrick
May’s higher inflation rate in Canada can only be called “rude”

Canada’s inflation rate in May rose to the highest level since March 2003, according to Statistics Canada. The year-over-year change in the all-items Consumer Price Index (CPI) was +3.7%. April’s price advance had been +3.3%.

The latest inflation-rate figure was even higher than during the commodity-induced price binge in mid-2008 (+3.5%). Globe oil prices rose to their highest all-time level, US $144 per barrel, in July 2008.

During four months at the tail end of the recession – June through September, 2009 – Canada experienced deflation, with -0.9% being the steepest year-over-year decline in prices. Since then, the possibility of deflation has been discussed on occasion. But for now, such a notion seems nothing short of quaint.

The “core” inflation rate this May, which omits eight highly volatile items mainly in the food and energy areas, was still under wraps at only +1.8%. The problem is that people in the real world do have to eat, travel and regulate temperatures at home and in the office.

The Canadian inflation experience is quite similar to what is occurring south of the border. The U.S. headline price increase in May was +3.6% and the gain exclusive of food and energy was +1.5%.

In both countries, the most obvious “sore spot” is the price of gasoline, +29.5% year over year in Canada and an even more outrageous +36.9% in the U.S.

Regionally, Ontario has been stuck with the largest price increase at the pumps, +35.6% year over year. The residents of B.C. have caught the biggest break, +20.7%, although clearly that’s only relative.

There should be some relief on the petrol front moving forward, since the world price of oil has backed off from US $110 per barrel to US $90. The most recent spike in oil prices came at the beginning of the peoples’ uprising in Libya.

Statistics Canada points out that the gasoline price index in Canada now stands only a little below its all-time peak reached in July 2008.

The food price increase (+3.9%) in Canada in May was higher than for the overall gain in prices (+3.7%). In the U.S., food prices were +3.5% year over year in the latest month.

Prices for food purchased from stores in Canada was +4.2%. That’s as opposed to restaurant meals (+3.2%) where the competition is fierce to attract customers.

Furthermore, it’s often staples that are recording the large price increases. Consider that the price of bread in Canada has moved up 10.6% year over year. Some other large increases have come in eggs, +6.7%, and fresh milk, +4.3%.

Meat product prices, partly due to increases in the cost of feed, have also been on a steep upward climb. In May, fresh or frozen pork was 6.9% more expensive than a year ago; fresh or frozen beef was +6.7%. In processed meats, ham and bacon was +7.6%.

Besides being peak oil-price month, July 2008 was also when the global food-price crisis struck.

Similar conditions have returned. While China’s overall inflation rate has been hovering near a worrisome +5.0%, its food price inflation rate in May was +11.7%. Small wonder the government in Beijing has been introducing measures to slow the economy and bring inflation under control.

Authorities versed in international agricultural supplies are not optimistic. The inventory of corn in the world, expressed as number-of-consumption-days, has dropped to its lowest level since 1974. The price of corn currently stands nearly double its level of a year ago.

Sidetracking of corn into ethanol production has been a factor in the shortage. Estimates of the proportion of U.S. corn production that are now going into making ethanol, mostly under government subsidy programs, range from a low of 40% to a high of 50%.

World inventories of wheat are also low. Severe weather in the form of both drought (China) and flooding (Australia, Brazil and North America) are the cause. This has implications throughout the food chain, both for humans and livestock.

Some final words are warranted on the different inflation rates across the country. The highest year-over-year price gains in May were recorded in the Atlantic Region, with Nova Scotia at +4.6% and New Brunswick, +4.1%.

Ontario, with a +4.0% inflation rate, was in third place. The aforementioned large hike in gasoline prices was a big factor in the province. But Ontario also experience a higher-than-national-average increase in food prices, at +5.4%. As a resident of this province, I can attest to how our family’s weekly grocery bill has sky-rocketed.

The slowest rate of price advance among the provinces occurred in Alberta, +2.8%.

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

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