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Gas drives inflation higher Higher prices at the gas pump pushed Canada’s annual inflation rate to 2.4 per cent in December, a marked jump from November’s 2 per cent, though the Bank of Canada’s so-called core reading, which strips out volatile items, came in at 1.5 per cent, up just slightly.
On a monthly basis, The Globe and Mail’s Tavia Grant reports today, consumer prices rose 0.3 per cent in December from November.
The jump in the annual rate is due to both higher gas prices and the fact that the December measure is compared to a soft month a year earlier, when retailers were discounting in the Christmas selling period. The introduction of the harmonized sales tax in B.C. and Ontario has also, overall, boosted price readings by 0.7 of a percentage point.
Factor out gas prices and the HST, said BMO Nesbitt Burns economist Sal Guatieri, and the inflation rate is “remarkably low.”
"The major theme here is that Canadian underlying inflation trends are still quite muted, especially in the face of heavy increases in gasoline prices, the lingering impact of the HST and the global upswing in food costs," added Douglas Porter, deputy chief economist at BMO Nesbitt Burns.
"While these factors are likely to keep average inflation a bit above 2 per cent in 2011, core inflation looks set to remain comfortably docile around current trends through much of the year. It’s unlikely that anyone will change their forecast on the Bank of Canada outlook on this CPI result, but it does strengthen the case that the bank can take its time before hiking rates again."
The core reading, which guides the Bank of Canada even though it targets a 2-per-cent level in overall inflation, continues to suggest there is no pressure on central bank chief Mark Carney to raise interest rates any time soon. The core rate is his operational target, and, the Bank of Canada said last week, it expects this measure to climb back to 2 per cent by the end of 2012.
While the core measure is often the focus of inflation readings, because it guides interest rates, sometimes we forget that consumers still have to drive and taxes. Core prices represent 83 per cent of the total.
The outlook for inflation is also tame, though the run-up in global food prices is expected to catch up in Canada.
"Much like we are seeing on the international scale, rising agricultural commodity prices are likely to feed into higher grocery bills for Canadians in the coming months," said economist Diana Petramala of Toronto-Dominion Bank. "Nonetheless, outside of food, inflation pressures will remain under wraps."
- Inflation rate ticks higher on gas prices
- Global inflation fears reach new heights
- Economy Lab: Cars, specialty foods drive surge in spending
Blame it on the weather You'd almost think it was Canada. Britain's finance minister said today that harsh winter weather helped knock down the economy in the final quarter of last year.
The country's Office for National Statistics reported that the economy shrank by 0.5 per cent in the last three months of 2010, a reading that surprised markets and battered the pound.
Yes, it was a bitter December, but the latest measure of gross domestic product shows not only the weakness of the economy but the threat of stagflation - no growth, high unemployment but rising prices nonetheless - and the conundrum facing Bank of England Governor Mervyn King as inflation runs at 3.7 per cent.
“The pound tumbled across the board this morning after preliminary Q4 GDP came in significantly below expectations, contracting 0.5 per cent against an expectation of positive growth of 0.5 per cent,” said CMC Markets analyst Michael Hewson.
“Part of this can be put down to the bad weather in December; however the extent of the fall has spooked markets and seen the pound plummet and gilt prices soar as the likelihood of a rate hike disappears in the near term. There are now concerns that the U.K. economy could get mired in stagflation at a time when none of the major cuts has even started to bite yet. These awful figures present the Bank of England with a major headache but also justify Mervyn King’s reluctance to countenance a rise in rates.”
India raises rates, Japan holds firm India's central bank moved again today to tame inflation, hiking its benchmark lending rate by a quarter of a percentage point. The Reserve Bank of India has now increased rates by 175 basis points, or 1.75 percentage points, since last March.
"The RBI is responding to food price inflation, in a country that spends about one-third of its consumer budget on food," said Scotia Capital economists Derek Holt and Gorica Djeric.
"... What is inflationary to a developing economy's central bank isn't necessarily so to a developed country's central bank. In much of the West, for example, higher commodity prices imposed upon weak household incomes pose the risk of crowding out discretionary income spent on other items in a broadly disinflationary outcome."
Also today, the Bank of Japan held rates steady at its policy meeting, though it did issue new forecasts that suggest faster economic growth this year.
“The economy will probably emerge from its slump soon and return to a moderate recovery path,” Bank of Japan Governor Masaaki Shirakawa told reporters. “What’s important is that we can foresee a path leading toward deflation’s end, in which price declines will moderate and start rising, and we’re approaching that point.”
He raised his outlook to growth of 3.3 per cent this year from an earlier projection of 2.1 per cent.
On his outlook for deflation, Mr. Holt and Ms. Djeric noted that the comment "could just as easily been delivered at any point in the past two decades."
IMF says economy wobbly The global rebound has picked up steam, but could be in jeopardy unless wealthy countries show more resolve in attacking debt problems, and emerging powerhouses keep their simmering economies from boiling over, the International Monetary Fund warned today.
The IMF predicts the world economy will expand 4.4 per cent this year, a slight increase from the 4.2 per cent it forecast in October, Globe and Mail economics writer Jeremy Torobin reports. The change is the result of a stronger-than-anticipated recovery in the second half of 2010 and the likely effects of U.S. moves to boost the world’s biggest economy.
- Worldwide economy still wobbly: IMF
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- While think tanks abound, Davos has become a 'do' tank
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Consumer confidence on rise Consumer confidence is on the rise in Canada, bolstered by the happier folks in Ontario and on the Prairies, according to the Conference Board of Canada.
The group's consumer confidence index rose 7.1 points this month.
"While the balance of opinion improved on all four questions, responses on the future finances and major purchases questions were particularly optimistic in January."
U.S. home prices sink again Is there any bottom in sight for the embattled U.S. real estate industry?
The S&P/Case-Shiller home price index, a widely followed measure of the health of the sector, showed today that prices in 20 cities sank 1.6 per cent in November from a year earlier. That's the biggest annual drop since late 2009.
Notable here is that in eight cities, prices hit new lows compared to their peaks. And the situation is expected to only worsen this year as foreclosures speed up.
"While the U.S. economy continues to improve, the housing market clearly remains in recession," said CIBC World Markets economist Krishen Rangasamy.
CN boosts dividend Canadian National Railway today boosted its quarterly dividend by 20 per cent and announced a new share buyback program for up to 3.6 per cent of its stock.
CN's moves came as the railway posted a drop in fourth-quarter profit to $503-million or $1.09 a share from $582-million or $1.24 a year earlier. Revenue climbed 12 per cent to $2.1-billion.
“We believe the North American economy will continue to recover in 2011, but at a slower pace than in 2010, and that global economic conditions will continue to improve," said chief executive officer Claude Mongeau.
"While we expect to face some headwinds from increased depreciation expenses and a higher Canadian dollar, CN is aiming for double-digit growth in 2011 diluted earnings per share (EPS) over adjusted diluted EPS of $4.20 for 2010."
The quarterly dividend was hiked to 32.5 cents.
In Personal Finance today
Pension consultant says young adults have their priorities straight if they pay down debt first, Rob Carrick reports.
In this week's Cash Clash, a Toronto couple gets a math lesson when they ask financial expert Kelley Keehn whether they should buy a car or continue to rent.
Couponers save cash, stockpile goods and sometimes suffer stereotyping. How much does it really pay off?
From today's Report on Business
- CN, CP eye shipping oil to West Coast
- Unions step up pressure for wage hikes
- Tanger, RioCan to launch upscale venture
- Streetwise: Manulife woes spark talk of shareholder activism