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At the national level, the average change in consumer prices in July 2007 compared with July 2006 remained at 2.2% for the fourth straight month.

Higher costs associated with owned accommodation (+4.8%) remained the main source of upward pressure on the Consumer Price Index (CPI) for the fourth consecutive month. Higher food prices (+2.8%) also contributed to the rise in consumer prices. Conversely, the decline in prices for gasoline and for computer equipment and supplies mitigated the average rise in consumer prices.

The all-items index excluding energy rose by 2.5% in July 2007 compared with the same month of the previous year, an increase that surpassed the one observed in June (+2.2%). The shelter component exerted strong upward pressures on this index.

The Bank of Canada’s core index, used to monitor the inflation control target, rose by 2.3% between July 2006 and July 2007 after posting a 2.5% increase in June. The rise in homeowners’ replacement accounted for most of this increase.

Consumer prices rose by 0.1% between June and July 2007, compared to a 0.2% drop the previous month. Higher prices for a number of components, such as women’s clothing, traveller accommodation, as well as rise for mortgage interest cost, were largely offset by lower prices for motor vehicle purchases and leases, natural gas and fresh vegetables.

Both the all-items index excluding energy and the core index rose by 0.1% between June and July 2007. These indexes were unchanged between May and June.

Twelve-month change: Owned accommodation remains major contributor for the fourth straight month

Consumer prices increased by 2.2% in July 2007 compared with July 2006. This is the fourth consecutive month a 2.2% rate of growth has been posted.

The rise in the Consumer Price Index (CPI) was mainly due to the increase in costs associated with owned accommodation and, to a lesser extent, food.

The combination of falling prices for gasoline, computer equipment and supplies, and natural gas partially offset the rise in consumer prices.

The dominant effect of costs for owned accommodation on the growth in consumer prices over 12 months persisted for a fourth straight month. The growth in mortgage interest cost was 6.0% between July 2006 and July 2007. An increase of such magnitude had not been observed since December 2000. While mortgage interest cost had mainly been stimulated by the growth in new house prices for the past several months, in July it was largely driven by an increase in interest rates. The change in the all-items CPI without mortgage interest cost between July 2006 and July 2007 was 1.9%.

Homeowners’ replacement cost was also a significant contributor to the increase in the CPI in July. This component, which represents the worn-out structural portion of housing and is estimated using new housing prices (excluding land), increased by 6.2%, while growth in this component was 6.1% the previous month. This was the second consecutive increase for this component, which had been showing signs of weakening over the previous eight months.

Again with regard to shelter, higher property taxes (3.0%) and rents (1.6%) also had a significant influence on the all-items index.

In July 2007, consumers spent 2.7% more than in July 2006 for food purchased at grocery stores. This increase came mainly from prices for meat (+4.9%), dairy products (+3.9%) and cereal products (+2.8%). Prices for restaurant meals also increased (+3.6%).

In spite of these increases, Canadians were also able to take advantage of a 3.7% drop in fresh fruit prices at the grocery store in July 2007 compared with July 2006.

The 2.8% drop in gasoline prices accounted for most of the dampening effect on the rise in consumer prices. Lower gasoline prices were recorded in all provinces except for the Prairies, and Newfoundland-and-Labrador.

Natural gas prices were down by 3.2% in July. Prices for this component had increased by 1.9% in June after 11 months of consecutive reductions. In July, decreases were recorded in all provinces but Saskatchewan, Quebec, and British Columbia.

The downward trend in prices for electronic goods as a result of technological progress continued to moderate the increase in the CPI. Consumers enjoyed a drop in prices of 17.7% for computer equipment and supplies and of 8.6% for video equipment.

Owned accommodation cost slows down in Alberta

The increase in consumer prices was between 1% and 2% for all provinces except Alberta (+5.0%), Saskatchewan (+3.2%), Manitoba (+2.2%) and New Brunswick (+2.2%). In June, Alberta posted a 12-month increase of 6.3 %. This slowdown in the growth of the CPI in Alberta was the most substantial posted in that province since October 2003. Under the influence of rising mortgage interest costs and homeowners’ replacement cost, the cost of owned accommodation rose by 13.9% in Alberta, the smallest increase recorded since May 2006. The slowdown in shelter costs, compared with June, is essentially related to the slowing growth in homeowners’ replacement cost. The latter increased by 17.8% in July, down from the 23.6% rise posted in June.

In Saskatchewan, the 15.2% increase in the cost of owned accommodation came mainly from the leap in homeowners’ replacement cost (+37.7%), which surpassed the 31.8% climb recorded in June. The increase in average prices posted in Saskatchewan for this component was higher than that in Alberta for the second month in a row.

The smallest increases in the CPI were observed in Newfoundland and Labrador (+1.0%), Prince Edward Island (+1.3%) and Quebec (+1.3%). In these provinces, the increase in prices was largely due to mortgage interest cost.

From June to July 2007: Moderate growth in the CPI

On a monthly basis, average prices rose by 0.1% between June and July 2007 after dropping by 0.2% the previous month. The upward pressure from women’s clothing, traveller accommodation and mortgage interest cost was largely offset by lower prices for motor vehicle purchases and leases, natural gas and fresh vegetables.

Women’s clothing prices climbed by 4.0% in July following a 4.3% downturn in June.

Prices for traveller accommodation posted a 4.6% increase between June and July. Although this increase is lower than the one posted during the same period last year (+5.8%), it is in line with the shifts in prices regularly observed during the peak tourist season.

Mortgage interest cost rose by 0.8% in July, up from the monthly increases of 0.4% recorded over the past six months. The acceleration in July was mainly the result of the increase in mortgage interest cost. A similar increase has not been observed since August 1994.

Consumers were able to purchase and lease motor vehicles for 1.6% less than in June following a decrease of 0.3% over the preceding month. Such downward movement is common during this period of the year when discounts are offered to reduce inventories of the current year’s models.

The 4.6% drop in natural gas prices also mitigated the monthly increase in the CPI. The decline observed in July is related to the price decreases posted in Alberta (-15.3%), Ontario (-3.3%) and Quebec (-1.7%).

Consumers spent 5.6% less for their fresh vegetables in July, compared with the previous month. This decrease is seasonal and reflects the arrival of local harvests in grocery stores.

Twelve-month change: The core index slows down

The core index, as defined by the Bank of Canada, rose by 2.3% in July 2007 over July 2006. This was less than the 2.5% increase reported in June. July’s increase was primarily driven by homeowners’ replacement cost.

On a monthly basis, the core index rose by 0.1% after remaining unchanged in June.

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 energy price index falls

The energy price index fell by 1.7% between July 2006 and July 2007 after rising by 1.2% in June and 1.6% in May. This was the first decline in this index since January 2007, and is largely attributable to lower gasoline prices (-2.8%). The 3.2% drop in natural gas prices and the 1.6% decline in prices for heating oil and other fuels also exerted downward pressure on this index. The 1.5% growth in electricity prices and a 2.2% increase in prices for fuel, parts and supplies for recreational vehicles mitigated the drop in this index.

The energy index was down by 0.4% between June and July 2007, less than the 1.3% slide observed between May and June 2007. This decrease stemmed from the combined effect of falling prices for natural gas (-4.6%) and gasoline (-0.1%). The 1.2% growth in electricity prices helped to mitigate the effect of these changes on the increase in the energy index.

The twelve-month rise in the services index accelerates as a result of owned accommodation prices

Prices for services rose 3.7% between July 2006 and July 2007 following a 3.3% growth the previous month. This growth is largely the result of the increase in mortgage interest cost (+6.0%) and homeowners’ replacement cost (+6.2%).

Prices for services rose by 0.4% between June and July 2007, up slightly from the 0.3% growth posted the previous month. This increase stemmed mainly from the upswing in mortgage interest cost. The cost of this service rose by 0.8% between June and July 2007 following a 0.4% growth the previous month.

The goods index increased by 0.5% between July 2006 and July 2007, down from the 0.9% rise observed the previous month. The rise in prices for non-durable goods (+0.9%) and semi-durable goods (+0.7%) more than offset the fall in prices for durable goods (-0.5%). The deceleration in the growth of the goods index came mainly from gasoline prices. The growth in gasoline prices advanced by 1.7% in June, a major turnaround compared to the 2.8% drop reported in July.

The upward pressure on the price index for non-durable goods came mainly from food purchased in stores. If these goods were excluded, the price index for non-durable goods and the goods index would have respectively slipped by -0.2% and -0.3%. Prices for the food component rose by 2.7% in July 2007 compared with July 2006. Meat (+4.9%) made a substantial contribution to the growth in prices for food purchased in stores. The 5.4% increase in cigarette prices also exerted a substantial upward pressure on the non-durable goods index.

The rise in prices for semi-durable goods (+0.7%) also sustained the growth in the goods index following a 1.1% drop the previous month. This reversal can mainly be explained by the fact that average prices for women’s clothing rose by 1.1% in July 2007, compared with July 2006 after dropping by 2.1% the previous month.

The 0.5% decrease in prices for durable goods followed in the wake of 14 consecutive monthly decreases in this index. The 17.7% decrease in prices for computer equipment and supplies was primarily responsible for the decrease of this aggregate in July.

The goods index fell by 0.3% between June and July 2007. The combination of falling prices for non-durable goods (-0.4%) and durable goods (-0.9%) surpassed the growth in prices for semi-durable goods (+1.1%). The downturn in prices for durable goods was mainly driven by the decrease in prices for motor vehicle purchases (-1.7%). The 4.6% drop in natural gas prices during this period played a major role in the decrease in the price index for non-durable goods.

The seasonally-adjusted CPI remains unchanged between June and July

The increase in four of the eight main components of the CPI was entirely offset by the decrease in three components. The all-items index thus remained unchanged between June and July 2007.The components that exerted upward pressures were clothing and footwear (+1.8%), alcoholic beverages and tobacco products (+0.5%), shelter (+0.2%) and household operations and furnishings (+0.2%). Decreases in transportation (-0.6%), health and personal care (-0.3%) and food (-0.1%) cancelled out the upward pressure from the other components. The price index for recreation, education and reading remained unchanged during this period.

The seasonally-adjusted core index, as defined by the Bank of Canada, increased by 0.2% between June and July 2007.