Higher airfares could push up Canadian CPI

Higher airfares could push up Canadian CPI

The consumer price index gained 2 per cent in December from a year ago, up from November's 1.7 per cent pace, as air-transport prices surged 22 per cent surge. Analysts were expecting the same 1.7% increase as in November. The Bank of Canada's two other preferred measures of core inflation, CPI-common and CPI-trim, were stable at 1.9 percent.

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Experts believe Friday's core figures mean there's no inflation-fuelled urgency for the Bank of Canada to raise its trend-setting interest rate. They were stable and held below the central bank's target.

The bank pays close attention to core inflation ahead of its rate decisions.

Canadian inflation unexpectedly accelerated on a surge in airfares last month, but underlying price pressures remained steady. Timelier data suggest that further falls in gasoline prices subtracted 0.2%-points from inflation in December.

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All three measures of core inflation were unchanged in December. Due to increased seasonality in the index this year than last year, the reported rate of airfare inflation has surged during the peak travel months. Statistics Canada also said to treat the jump in air transportation costs with caution after a change in how it's calculated.

Inflation was also up last month due to a 7.5 per cent boost in mortgage interest costs, a 3.8 per cent increase in restaurant bills and 5.1 per cent rise in passenger vehicle insurance premiums. "At the same time, consumers paid 8.5 per cent less for natural gas in 2018, as a surplus in the commodity market drove consumer prices lower", said the federal agency. Only Newfoundland and Labrador, Nova Scotia and New Brunswick saw prices rise at a slower rate.

Even with the unexpected pickup, the overall inflation picture remains benign, with few signs of the price pressures that could prompt the Bank of Canada to act with more immediacy.

A core rate at near 2 per cent is consistent with an economy at full capacity - but not one that is overheating. He has introduced five rate hikes since mid-2017 in response to the stronger economy.

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