Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Report on Business

Economy Lab

Delving into the forces that shape our living standards
Best Business Blog, EPPY awards, 2011 and 2012

Entry archive:

Economy Lab has moved

Only Globe Unlimited members will now have access to a wide range of insightful commentary
and analysis on the economy and markets previously offered on this page.


Globe Unlimited subscribers will be able to read these columns,
written by some of Canada’s most deeply respected economists,
such as Christopher Ragan, Sheryl King, Andrew Jackson, and Clement Gignac,
as part of our ROB INSIGHT section.


All of our readers will still be able to browse the Economy Lab archives and read our
broader coverage of economic data and news by accessing their 10 free articles a month.


Learn more about Globe Unlimited and how to subscribe.

An Atwater Market bakery in Montreal. The rise in food prices abated as 2011 came to an end. (Christinne Muschi/The Globe and Mail/Christinne Muschi/The Globe and Mail)
An Atwater Market bakery in Montreal. The rise in food prices abated as 2011 came to an end. (Christinne Muschi/The Globe and Mail/Christinne Muschi/The Globe and Mail)

Economy Lab

Soft CPI data silence roars of the inflationistas Add to ...

The year 2011 was marked by loud shouting on the part of inflationistas over how loose monetary policy was destined to stoke a spike in prices. That shouting should continue this year because that destiny has yet to arrive.







Canadian headline inflation plunged in December, to an annual rate of 2.3 per cent in December from 2.9 per cent in November. The drop was the result of significantly lower prices for gasoline and automobiles, Statistics Canada said in its monthly report Friday. The acceleration in the price of food also slowed at the end of 2011, to an annual increase of 4.4 per cent from 4.8 per cent in November.

More related to this story







Inflation pressures also eased at the year in the United States, the Labor Department said Thursday. Combined, the reports are vindication for the Bank of Canada and the Federal Reserve. As consumer prices rose through the middle of 2011, central bankers said the increase would be transitory, as it was rooted in a temporary jump in commodity prices. Things could change, but the initial data argues in the central banks’ favour.







Central bankers are confident that inflation will remain muted because there isn’t enough consumer demand to bid prices higher. Producers and retailers might like to charge more for their products to absorb higher input costs, and some have marked up prices. But there’s a limit to that in an economy marked by elevated unemployment and stagnant wages.







In Canada, the price of passenger vehicles dropped 0.2 per cent in December on an annual basis after jumping 1.8 per cent the month before. Clothing costs plunged 4.3 per cent, reflecting holiday discounting that was steeper than typical.







Declines of this magnitude might cause worry of deflation at first glance. Adjusted for seasonal factors, the plunge is less severe. Seasonally adjusted, the drop in clothing was 0.1 per cent. The headline consumer price index dropped 0.2 per cent on a seasonally adjusted basis.







However, the overarching storyline remains the same: the only pressure on the Fed and the Bank of Canada is coming from the hecklers in the audience. Perhaps someday the inflationistas will be proven correct, but for now, the data just isn’t on their side.

In the know

Most popular videos »

Highlights

More from The Globe and Mail

Most popular