Highlights
The All-items Consumer Price Index was up 1.6% between December 2005 and December 2006. The index showed increases of more than 2.0% during the first eight months of 2006, in sharp contrast with the more modest rises of recent months. However, following a substantial decline in September, three consecutive increases have marked the trend in the variation of the All-items index since October. Nevertheless, these increases have not advanced at the pace of those experienced during the first eight months of the year. Overall, with an average increase of 2.0%, 2006 compares favourably with the previous years.
The 1.4% to 1.6% increase in the 12-month variation in the All-items index in December 2006 is largely attributable to upward pressure from the gasoline prices. An increase of prices in the housing sector, as well as a slowdown in the decrease in the natural gas index also contributed to the upward pressure on this month’s All-items CPI.
The 12-month variation in the All-items index less energy components was up 1.7% in December. The sustained growth in prices for owned accommodation was the primary factor driving the increase in the All-items less energy.
The core Consumer Price Index, used by the Bank of Canada for the purpose of monitoring the inflation-control target, rose by 2.0% between December 2005 and December 2006, compared with 2.2% the previous month.
On a monthly basis, consumers had to pay 0.2% more in December 2006 than during the previous month for the goods and services included in the CPI basket, unchanged from the one reported in November. This month, rising gasoline prices were the primary source of the upward pressure exerted on the All-items index.
The All-items less energy reported a slowdown of 0.1% in December, a somewhat significant turnaround from the 0.2% increase of the previous month. Lower prices for men’s and women’s clothing contributed to the decrease in this index, but the rise in the index for cigarettes and for owned accommodation exerted upward pressure.
With a 0.2% slowdown in December, in the wake of a 0.3% increase in November, the monthly Core CPI reported a similar pattern to the All-items less energy—albeit with a slightly more pronounced change.
Twelve-month percentage change in the CPI: +1.6%
Twelve-month percentage change in the CPI excluding energy: +1.7%
The All-items Consumer Price Index rose by 1.6% between December 2005 and December 2006, compared with a 1.4% growth during the previous month. This 1.6% increase is primarily attributable to steady rising costs paid by homeowners in recent months.
Percentage change from the same month of the previous year, Canada
Homeowners’ replacement cost along with mortgage interest cost continued to push up the All-items CPI in December 2006. This pressure was largely offset by a drop in prices for purchasing and leasing automotive vehicles and, to a lesser extent, natural gas, computer equipment and supplies, and men’s and women’s clothing.
For a second straight month, homeowners’ replacement cost, which represents the worn-out structural portion of housing and is estimated using new housing prices (excluding land), shot up by 8.2%. Since August 2006, this index has posted increases in excess of 8.0%.
Strong demand for new houses, combined with rapid employment growth and a robust economy, set the stage for a sharp increase in the western provinces. In November 2006, building permits reached yearly all-time highs due to the strong increase in residential construction in the western provinces, and Alberta in particular, where the economic boom is continuing.
The dizzying rise in replacement cost in Alberta (+43.1%) remained the primary factor responsible for the rise in this index at the national level, while the price increases recorded elsewhere in Canada played a much more modest role in this growth. Saskatchewan (+10.3%) and Manitoba (+6.8%) nonetheless posted relatively high increases. The growths posted in British Columbia (+4.4%), Ontario (+3.9%), and Quebec (+3.0%) were slightly less pronounced between December 2005 and December 2006.
Mortgage interest costs continued to move upward, rising 4.9% in December 2006 over the same month in 2005. This index has continually increased since early 2006. Last year, the level of the mortgage interest cost index remained relatively stable.
Cumulative rate increases in 2006 in Ontario (+7.5%), Alberta (+23.7%), Quebec (+3.3%), and British Columbia (+3.7%) pushed up electricity prices by 6.7% in December 2006.
Rising production costs contributed to the increase in prices for foods purchased in restaurants (+2.5%). Higher tobacco taxes in some provinces resulted in a rise in cigarette prices (+4.7%) and pushed up the All-items CPI this month.
Lower prices for purchasing and leasing automotive vehicles, natural gas, computer equipment and supplies, and men’s and women’s clothing exerted downward pressure on the All-items CPI.
The 1.9% drop in prices for purchasing and leasing automotive vehicles between December 2005 and December 2006 is partly attributable to the discounts offered by manufacturers on the new 2007 models. Fierce competition among manufacturers has led to incentive programs for purchasing the new 2007 models and partially explains this year’s lower prices, compared to the same period last year.
The milder temperatures observed in recent months influenced natural gas prices in the last quarter of 2006. Decreases in the price of the natural gas index continued for a sixth straight month. The natural gas index dropped 7.5% between December 2005 and December 2006. Almost all Canadian consumers benefited from this price decrease, with the exception of residents in Alberta, where the price of natural gas rose 3.3% in December 2006.
The steady decline in prices for computer equipment and supplies (-19.1%) and lower prices for men’s clothing (-4.3%) and women’s clothing (-2.8%) also mitigated the growth of the All-items CPI this month.
Annual average percentage change in the CPI: 2.0%
Annual average percentage change in the CPI, excluding energy: 1.7%
Although highly useful in indicating the direction of the All-items index, monthly changes as well as 12-month changes often reflect the effect of unanticipated random shocks. The trend in the All-items index becomes more obvious with annual averages.
Percentage change in the All-items index, Canada
In 2006, consumers paid 2.0% more for the goods and services included in the Consumer Price Index basket, compared with 2.2% in 2005. This year, lower gasoline prices helped to offset the strong upturn in the owned accommodation sector.
Over the past three years, the annual growth in the CPI remained approximately 2.0%, following a period of increases in excess of 2.0% during the first four years of the millennium. The All-items CPI posted an annual growth of 2.8% in 2003.
Non-seasonally adjusted monthly percentage change in the CPI: +0.2%
Non-seasonally adjusted monthly percentage change in the CPI excluding energy: -0.1%
The monthly All-items Consumer Price Index slid up 0.2% for the second month in a row in December 2006.
The gasoline index played a significant role in the increase in the All-items index between November and December 2006. Higher prices for cigarettes, household maintenance and repairs, and mortgage interest cost also pushed up the monthly All-items index. Falling prices for women’s and men’s clothing and for non-alcoholic beverages nonetheless exerted downward pressures on this index.
Gasoline prices climbed 4.1% between November and December 2006. This growth was slightly less than the 4.6% rate posted earlier this year in July.
Gasoline prices were up from coast to coast, except in Manitoba (-0.1%). The biggest increase, 6.8%, occurred in Prince Edward Island. Other increases ranged from 6.6% in Nova Scotia to 1.0% in Saskatchewan.
Between November and December 2006, increases in prices for cigarettes (+1.7%), household maintenance and repairs (+1.7%) and in mortgage interest cost (+0.4%) also pushed up the monthly All-items CPI, although to a lesser extent.
Lower prices for women’s and men’s clothing and for non-alcoholic beverages had a moderating effect on the monthly change in the All-items CPI in December 2006.
The discounts associated with fall sales combined with holiday sales brought down women’s clothing prices by 5.4% in December. A reduction of this magnitude in December has never been previously recorded. A similar decrease had not been observed since April 2006, when women’s clothing prices plunged 5.8%.
The same phenomenon occurred with men’s clothing between November and December 2006, when prices dropped by 4.1%. The most pronounced decrease was observed in June 2003 (-5.1%).
Lower prices for non-alcoholic beverages (-3.3%), which could be attributed to the discounts offered on soft drinks for the holiday season, exerted a slight downward pressure on the monthly All-items CPI.
The seasonally-adjusted CPI rises 0.4% between November and December
The seasonally-adjusted CPI rose 0.4% between November and December 2006. The majority of components posted increases this month. The growth in the indexes for transportation (+1.2%), shelter (+0.5%), alcoholic beverages and tobacco products (+0.9%), recreation, education and reading (+0.1%) and the index for health and personal care (+0.1%) contributed to the growth in the seasonally-adjusted index. Prices for household expenses and equipment remained unchanged in December. The 1.4% decline in the clothing and footwear index and lower prices for food (-0.4%) exerted downward pressure on the seasonally-adjusted All-items index in December.
The seasonally-adjusted core Index as defined by the Bank of Canada increased 0.1% between November and December 2006, the index had remained unchanged the previous month.
Special aggregates
Core CPI published on behalf of the Bank of Canada
The core Consumer Price Index is obtained by removing the effect of changes in indirect taxes from the All-items CPI and also excludes the eight most volatile components, as identified by the Bank of Canada. These volatile components are fruit, fruit preparations and nuts; vegetables and vegetable preparations; mortgage interest cost; natural gas; heating oil and other fuels; gasoline; inter-city transportation; and tobacco products and smokers’ supplies.
The 12-month change in the Core Index as identified by the Bank of Canada was 2.0% between December 2005 and December 2006, following a 2.2% rise in November. Month-over-month, this index was down 0.2% in December, in comparison with a 0.3% increase in the previous month.
Energy
Between December 2005 and December 2006, the energy index rose 1.5%, in contrast with a 2.8% drop the previous month. Increases in electricity prices and gasoline prices played the most significant role in pushing up this index in December 2006.
The annual change in prices for electricity (+6.7%), gasoline (+1.5%), and fuel, parts and supplies for recreational vehicles (+2.9%) contributed to the increase in the energy index between December 2005 and December 2006. Lower prices for natural gas (-7.5%) and for heating oil and other fuels (-4.9%) had a moderating effect on the increase in this index.
The monthly energy index climbed 2.7% between November and December 2006. All components of this index, namely gasoline (+4.1%), fuel oil (+3.9%), electricity (+0.7%), natural gas (+1.2%), and fuel, parts and supplies for recreational vehicles (+2.0%) posted increases in December 2006.
Goods and services
Following a 0.3% decrease the previous month, the price of goods was up 0.1% between December 2005 and December 2006. The non-durable goods index pushed up the goods index, while the price of durable and semi-durable goods exerted downward pressure on this index.
The 1.9% increase in prices for non-durable goods could largely be attributed to the growth in prices for electricity (+6.7%), cigarettes (+4.7%), and gasoline (+1.5%). However, falling natural gas prices (-7.5%) had a moderating effect on the rise in the non-durable goods index.
Lower prices for the purchase of automotive vehicles (-1.8%) and computer equipment and supplies (-19.1%) contributed to the 2.2% drop in the durable goods index in December 2006.
Men’s clothing (-4.3%) and women’s clothing (-2.8%) were the primary sources of the 2.5% decline in the semi-durable goods index.
On a monthly basis, the goods index posted 0.1% growth in December 2006. Non-durable goods (+0.8%) and durable goods (+0.1%) pushed up the index, while lower prices in the semi-durable index (-3.2%) slowed down the increase in the goods index between November and December 2006.
Over the past 12 months, prices for services rose by 3.1%. The increase in the indexes for homeowners’ replacement cost (+8.2%) and mortgage interest cost (+4.9%) played a large part in the increase in the services index.
Between November and December 2006, the services index was up 0.2%, following a 0.1% rise recorded the previous month.
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