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The Daily

Tuesday, March 18, 2008
February 2008

Consumer prices increased by 1.8% in the 12-month period to February 2008, the slowest rate of growth in six months and a marked slowdown from the 12-month increase of 2.2% in January. Less upward pressure from gasoline prices along with falling car prices accounted for most of this deceleration.

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The all-items Consumer Price Index (CPI) excluding gasoline prices increased by only 1.1% between February 2007 and February 2008. This was the smallest growth in this index since March 2004.

Gasoline prices were 17.1% higher in February 2008 than in February 2007, down from the 12-month increase of 20.9% posted in January.

Nevertheless, gasoline prices continued to be the main factor in the increase in consumer prices for the sixth consecutive month. Mortgage interest cost was also a significant contributor to this increase.

The 12-month change in the Bank of Canada's core index, which is used to monitor the inflation control target, was 1.5% in February. This was a slight acceleration from the growth rate of 1.4% in January, which followed seven consecutive monthly slowdowns.

Consumer prices rose 0.4% between January and February 2008, in contrast to the 0.2% decline during the previous month.

The core index rose by 0.5% between January and February 2008 following growth of 0.1% recorded in the previous period.

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12-month change: Gasoline prices slow, but are still the main source of upward pressure

Pump prices were still the main factor in the increase in consumer prices in February. The 17.1% gain in February was due more to the relatively low level of the gasoline price index at the same period last year than to any recent increases.

The growth in gasoline prices could be attributable to gains in the price of crude oil compared with the same period in 2007. The average price of crude was reported to be US $87.00 in February 2008, compared with US $59.28 in February 2007. On February 19, 2008, the price of a barrel of oil closed above US $100.

The price of heating oil and other fuels also rose significantly (+23.9%) in the 12-month period to February 2008. This represents a slight slowdown from the 24.7% increase posted in January.

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Mortgage interest cost climbed 8.1% in February, up from the 7.6% increase posted in January. This represents the eighth consecutive monthly acceleration of this index. The gain was due more to an increase in new housing prices than to a rise in mortgage renewal rates. New housing costs climbed in virtually all parts of the country.

Homeowners' replacement cost, which represents the cost of maintaining a housing structure, was up 4.8% in February 2008 compared with the same month of the previous year. The 12-month change in this index has accelerated in the past two months after slowing in the previous five months. Builders reported higher labour costs, as well as increases in the cost of certain materials, such as concrete, roofing, exterior siding and heating equipment.

A slide in vehicle purchase and lease prices (-6.8%) was the main factor mitigating these upward pressures. It was the fastest decline since February 1956. This downturn was due in part to lower manufacturer's suggested retail prices, and an increase or continuation of discounts offered on 2008 models. Some manufacturers began offering higher discounts on 2008 models, ahead of the arrival of the 2009 models on the market. This seasonal pattern is normally observed later in the year.

The price of fresh vegetables fell 16.9% in the 12-month period prior to February 2008, the most significant drop since March 1996. The supply of fresh vegetables was reduced at this time in 2007 because of a frost in California. Moreover, the Canadian dollar's appreciation between February 2007 and February 2008 also helped lower the cost of imported vegetables.

This factor also played a role in a 14.5% drop in fresh fruit prices. This decrease was driven mainly by lower prices for oranges (-36.2%), which had experienced a sharp 12-month change in February 2007 (+45.8%). The substantially lower price of grapes also contributed to the decline in fresh fruit costs. Cooler temperatures in Chile delayed the harvest expected in January, resulting in these products flooding the market in February and putting downward pressure on prices.

The downward trend in prices for computer equipment and supplies (-15.4%) continued in February. There was a particularly sharp drop in prices for laptops, central processing units for desktop computers, and some subcomponents. This movement was consistent with the long-term trend in this index, the result in part of technological advances and the effect of competition in this sector.

Women's clothing prices fell by 3.0% in February 2008 compared with February 2007, a slower drop than the 4.5% decline posted in January.

Particularly sharp slowdown in prices in Ontario

Ontario consumers experienced the fastest slowdown in consumer prices in the 12-month period to February 2008.

Consumer prices rose 1.5% on average in Ontario during this period, compared with 2.1% in January. A slower rise in gasoline prices was mainly responsible for this loss of momentum. Pump prices rose only 14.8% in February, compared with 26.0% in January.

The 12-month growth in consumer prices was especially strong in Alberta (+3.5%) and Saskatchewan (+3.4%). British Columbia consumers experienced the most modest price gain (+1.1%). This is mainly a reflection of the smallest 12-month rise in gasoline prices (+11.3%).

Monthly change: Seasonal increase in travel tours pushes up consumer prices

Consumer prices went from a decline of 0.2% between December 2007 and January 2008 to an increase of 0.4% between January and February 2008.

The 0.2% decline posted in January was partly the result of the reduction in the Goods and Services Tax. Strong upward pressure exerted by higher tour package costs also contributed to this reversal. After falling 10.3% in January, the price of tour packages rebounded 9.9% in February. This was a movement frequently observed at this time of year.

Prices of non-alcoholic beverages, consisting of soft drinks and bottled water, rose 8.4% between January and February 2008. This upward movement was driven by a return to regular pricing from discounts offered the previous month.

In February, traveller accommodation jumped 5.0%. These prices rose most sharply in Quebec (+11.3%). Events such as Carnaval in Québec and Winterlude in Ottawa contributed to the upswing in the cost of overnight accommodation in these cities.

Men's clothing prices rose 4.9% between January and February. This increase reflects the return to regular pricing after discounts on a wide range of clothing in the previous month. Price increases are often seen at this time of the year.

A 1.8% decrease in vehicle purchase and lease prices helped mitigate the rise in consumer prices in February. This change was due to a drop in manufacturers suggested retail prices and an increase in manufacturer's incentives.

Available on CANSIM: tables 326-0009, 326-0012, 326-0015 and 326-0020 to 326-0022.

Definitions, data sources and methods: survey number 2301.

More information about the concepts and use of the CPI are also available online in Your Guide to the Consumer Price Index (62-557-XIB, free) from the Publications module of our website.

The February 2008 issue of the Consumer Price Index, Vol. 87, no. 2 (62-001-XWE, free) is now available from the Publications module of our website. A paper copy is also available (62-001-XPE, $12/$111). A more detailed analysis of the CPI is available in this publication.

The March Consumer Price Index will be released on April 17.

For more information or to enquire about the concepts, methods or data quality of this release, call Client Services (toll-free 1-866-230-2248; 613-951-9606; fax 613-951-1539;, Prices Division.

Tables. Table(s).