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Consumer prices rose by 2.2% in June 2007 compared with June 2006, an increase identical to that posted in April and May.

For the third straight month, the costs associated with owned accommodation (+4.9%) accounted for much of the growth in average prices. To a lesser extent, the costs associated with motor vehicle operation (+2.8%) also played a role in this increase. Conversely, falling prices for computer equipment and supplies moderated the rise in average prices.

The all-items index without energy rose by 2.2% in June 2007 compared with the same month of the previous year, an increase slightly higher than that observed in May (+2.1%).

The Bank of Canada’s core index rose 2.5% from June 2006 to June 2007 compared with 2.2% in May. The rise in homeowners’ replacement cost accounted for most of this increase. This index is used by the Bank of Canada to monitor the inflation control target. The increase in this index has been over 2.0% for the past year.

On a monthly basis, the all-items index was down 0.2% between May and June 2007 after rising 0.4% the previous month. The downturn observed was largely tied to the decrease in gasoline prices. Falling prices for women’s and men’s clothing were also significant factors in this decrease.

Both the all-items index without energy and the core index remained unchanged between May and June 2007 following increases of 0.3% the previous month.

Twelve-month change: Higher costs for owned accommodation and motor vehicle operation drive growth

Prices for consumer goods and services rose by 2.2% between June 2006 and June 2007, an identical rate of increase to what was posted in the past two months. The rise in the CPI was essentially supported by the strength of costs associated with owned accommodation combined with the rise in the costs of operating motor vehicles.

The rise in prices for restaurant meals also contributed to the 12-month increase. The drop in prices for computer equipment and supplies, video equipment and men’s and women’s clothing dampened these increases to some extent.

For a third straight month, costs associated with owned accommodation accounted for most of the increase in prices over 12 months. Between June 2006 and June 2007, mortgage interest cost increased 5.7%. This follows an identical 12-month advance in April and May. An increase of such magnitude had not been observed since January 2001. For the past several months, the growth in new house prices has been driving the sustained increase in mortgage interest cost.

Homeowners' replacement cost was the second most important contributor to the increase in the CPI in June. This component, which represents the worn-out structural portion of housing and is estimated using new housing prices (excluding land), rose by 6.1% in June 2007 compared with June 2006. This was up slightly from the 6.0% increase observed in May. This minor upswing in the rate of growth for this component follows on seven months of slowdown. June's increase was less than the average change posted since early 2007 (+6.8%).

Drivers saw a 2.8% rise in the cost of operating their vehicles between June 2006 and June 2007. This growth came partly from higher gasoline prices compared to year earlier levels, although the rise has tapered off somewhat. In June, they were only 1.7% higher than June 2006, compared with 5.8% in May. To a lesser extent, automotive vehicle parts, maintenance and repairs (+4.0%) also contributed to the change in vehicle operating costs.

In June, consumers had to spend 2.3% more for restaurant meals and 3.4% more for food bought in grocery stores. The increase in prices for food purchased in stores could be largely attributed to meat (+4.6%) and dairy products (+3.7%).

The growth in these components was partly offset by the downward trend in prices for computer equipment and supplies (-17.3%) and video equipment (-9.5%).

Consumers also had to spend less for their clothing. Prices for men's clothing were down by 2.7% and for women's clothing by 2.1%.

Residents of Alberta and Saskatchewan were more affected by price increases than those of other provinces

Although consumer prices were up in all provinces and territories between June 2006 and June 2007, only Alberta (+6.3%) and Saskatchewan (+3.2%) posted increases higher than the national average (+2.2%). In Alberta, the growth in consumer prices has been higher than the national average since September 2005, while in Saskatchewan, the growth has been higher than the average for the past three months. In both Alberta and Saskatchewan, the increase in prices can largely be accounted for by costs for owned accommodation. Pushed up by the increase in new house prices, the growth in homeowners replacement cost in Saskatchewan (+31.8%) surpassed that of Alberta (23.6%) for the first time since September 2005. Owned accommodation (+12.7%) also made a significant contribution to the growth of the CPI in Saskatchewan between June 2006 and June 2007. The growth in prices in the real estate sector in Saskatchewan was sustained by the growth in the employment rate for the segment of the population over the age of 15 in that province. Growth in employment rate in Saskatchewan surpassed the national average from August 2006 to May 2007.

The most moderate growth in prices during this period was observed in Newfoundland-and-Labrador (+1.4%). This change is nonetheless considerable in light of the 0.7% increase posted in May. The cost of owned accommodation (+2.6%) and gasoline (+3.3%) contributed to most of the rise in the CPI in that province.

The increases in the CPI in Quebec (+1.5%) and British Columbia (+1.5%) were lower than the national average.

From May to June 2007: gasoline prices remain the main contributor to the change in the CPI

Prices for consumer goods and services were down by 0.2% between May and June 2007. This is the first monthly decrease in the all-item index since October 2006. This decrease can largely be attributed to falling gasoline prices.

Gasoline prices dropped 4.1% in June, after being the main contributor to the rise in the CPI between April and May. A downturn of this magnitude had not been recorded since October 2006. The downturn in gasoline prices observed in June can partly be explained by the recovery in capacity utilization rates at refineries following completion of the maintenance tasks that had affected supply in May. The rise in stocks, although still below the average level of the past five years, also contributed to the decline in gasoline prices. The reduction of retailers' margins and the settlement of a labour dispute in Nigeria also had an influence.

A 4.0% slide in the clothing component between May and June 2007 also contributed to the monthly decrease in the CPI. Prices for women's clothing declined by 4.3% and for men's clothing by 4.5% during this period. Such changes are common in June given that retailers generally hold promotional sales to stimulate sales and reduce their inventories in order to make room for the collections of the following season.

Canadian consumers also had an opportunity to purchase vehicles at lower prices in June than in May 2007. Dealers offered discounts in order to reduce their inventories and make room for the 2008 models.

Energy costs associated with housing dampened the decline in the CPI between May and June 2007. During this period, on average, Canadians saw the average price of natural gas rise by 3.9%. This growth was particularly pronounced in Alberta. Electricity prices rose 1.6%, the largest increase since November 2006.

Again with respect to housing, homeowners’ replacement costs climbed by 0.8% on a monthly basis. This is the largest monthly increase observed since September 2006.

Twelve-month change: The core index increases

The core index is obtained by removing the effect of the changes in indirect taxes from the all-items CPI from which the eight most volatile components identified by the Bank of Canada have been excluded. 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 increase in the core index as defined by the Bank of Canada was 2.5% in June 2007, up from the 2.2% rise reported in May. The growth in this index has been more than 2.0% since July 2006. In June, the increase came primarily from homeowners’ replacement cost.

On a monthly basis, this index remained stable, down from the 0.3% growth of the previous month.

Energy: The influence of gasoline prices dominates

The growth in the energy products index was 1.2% in June 2007 compared to June 2006. This increase comes after a 1.6% upturn in May in the wake of virtual stagnation in April (+0.1%). The rise in June was largely related to changes in gasoline prices (+1.7%). To a lesser extent, electricity (+0.8%) and fuel, parts and supplies for recreational vehicles (+4.0%) also contributed to the rise in this index. The drop in prices for heating oil and other fuels (-2.9%) moderated the growth in this index.

The energy index dropped by 1.3% between May and June 2007, in contrast with a 2.1% increase between April and May 2007. This was the first monthly decrease recorded since January 2007 and it can largely be attributed to falling gasoline prices (-4.1%). To a lesser extent, the 2.0% decrease in prices for fuel, parts and supplies for recreational vehicles also had a downward impact on the energy index. The magnitude of this decrease more than offset the effect of the 3.9% rise in natural gas prices combined with the 1.6% rise in electricity prices.

Year-over-year, influenced by costs for owned accommodation, the services price index grew more than that of goods

Prices for services rose an average of 3.3% between June 2006 and June 2007. This growth was largely driven by the rise in mortgage interest cost (+5.7%) and homeowners' replacement cost (+6.1%).

Between May and June 2007, prices for services rose by 0.3%, the slowest growth in this aggregate over the past four months.

The goods index rose by 0.9% in June 2007 in relation to June 2006, down slightly from the 1.1% increase observed the previous month. Higher prices for non-durable goods (+2.2%) more than offset the decrease in prices for semi-durable goods (-1.1%) and durable goods (-0.5%).

The growth in prices for non-durable goods came essentially from the rise in food purchased in stores. If this component were excluded, the rise in non-durable goods would have been only 1.3% and that of the goods index 0.2%. Meat (+4.6%) accounted for most of the rise in prices for foods purchased at grocery stores. The 1.7% rise in gasoline prices also exerted upward pressure on this index.

The drop in average prices for semi-durable goods (-1.1%) nonetheless offset the rise in the goods index. The decrease in prices for computer equipment and supplies (-17.3%) combined with that for video equipment (-9.5%) accounted for most of this decrease.

The goods index dropped by 0.6% between May and June 2007, putting an end to six straight months of increase in this index. Decreases were more substantial for semi-durable goods (-2.3%) than for non-durable goods (-0.3%) and durable goods (-0.2%). The drop in prices for semi-durable goods can be explained by lower prices for men's clothing (-4.5%) and women's clothing (-4.3%).

The seasonally adjusted CPI remained constant between May and June

The rise of five of the eight main components was completely offset by the decline of the three other components. The all-items thus remained constant between May and June 2007. The main upward contributor is shelter (+0.7%). At a lesser extent, the growth in indexes for health and personal care (+0.5%), alcoholic beverages and tobacco products (+0.5%), and recreation, education and reading (+0.3%), and household operations and furnishings (+0.2%) also had an upward influence on the seasonally adjusted all-items index in June. The decline in prices for clothing and footwear (-1.6%), transportation (-1.2%), and food (-0.2%) completely offset the upward pressure exerted coming from the other components.

The seasonally adjusted core index as established by the Bank of Canada was up by 0.2% between May and June 2007.

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