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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 change of 2.2% in January. Less upward pressure from gasoline prices along with falling car prices accounted for most of this deceleration.

The all-items 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 change 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.

If the seasonal effect is excluded, the all-items increased by 0.1% and the core index rose by 0.3% between January and February 2008.

Seasonally unadjusted 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.

12-month change: gasoline prices slow down but remain the main source of upward pressure

Pump prices posted a 12-month positive change of 17.1%, a slower growth than the 20.9% posted during the previous month. These increases are due more to in the relatively low level of the gasoline price index at this time last year than to any recent changes in pump prices. Despite this slowdown, gasoline prices remained the main source of upward pressure for the sixth straight month.

The growth in gasoline prices could be attributable to the rise in the price of crude oil compared to the same period in 2007. The average price of crude was reported to be at US$59.28 in February 2007 compared to US$87.00 in February 2008. On February 19, 2008, the price of a barrel of oil closed above US$100. Some of the events that led to the increase in oil prices in February were an explosion at a refinery in Texas, Venezuela’s threat to reduce crude exports to the United States, ongoing political tension in Nigeria and speculation of a possible reduction in crude production by OPEC countries.

In contrast, certain factors, including the slowdown in the American economy and the announcement by the US Energy Administration of high crude oil inventories mitigated the impact of these events. In addition, the appreciation of the loonie in relation to the American greenback helped to soften the impact of the rise in the cost of crude oil in Canada.

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

Mortgage interest cost climbed 8.1% in February, up from the 7.6% increase posted in January. This is the eighth straight increase for this index. This 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. A tight labour market, higher incomes and growth in consumer confidence likely contributed to this increase. The 12-month change in new housing prices was strongest in Saskatoon. A report by the Canada Mortgage and Housing Corporation released in the fall of 2007 stated that there were about 1,000 single-family homes under construction in that city—the highest monthly climb posted since 1983. Given their more substantial weight in the basket, the increases that had the biggest impact on the national growth of new housing prices were those recorded in the Toronto-Oshawa area and in Edmonton.

Homeowners’ replacement cost, which represents the cost of maintaining a housing structure, was up 4.8% in February 2008 compared to the same month of the previous year. The 12-month change in this index has risen in the past two months after slowing in the previous five months. Builders reported increases in the cost of certain materials, such as concrete, roofing, exterior siding and heating equipment. Higher labour costs were also reported. The seasonally-adjusted number of housing starts in Canada rose between December and January, which contributed to the shortage of qualified labour in some regions and put further pressure on wages.

A slide in vehicle purchase and leasing prices (-6.8%) was the main factor mitigating these upward pressures. A decrease of this magnitude has not been observed since February 1956. This downturn is due in part to a decline in 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 change is normally observed later in the year.

The price of fresh vegetables fell 16.9% in the 12-month to February 2008. This is 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 appreciation of the dollar 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 was consistent with the long-term trend in this index, the result in part to technological advances and high competition effect 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% posted in January.

Particularly sharp slowdown in prices in Ontario

The 12-month rise in consumer prices slowed most significantly in Ontario (from 2.1% in January to 1.5% in February). A slower rise in gasoline prices was mainly responsible for this deceleration. Gasoline prices in the province increased only 14.8% in February compared to 26.0% in January.

Strong downturn in the growth in consumer prices was also posted in Nova Scotia (from 3.1% in January to 2.6% in February). These slowdowns were driven mainly by lower automotive vehicle prices.

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

Monthly change: The seasonal rise of travel tours pushes consumer prices

Consumer prices went from -0.2% between December 2007 and January 2008 to +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 the 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 up by a return to regular pricing from discounts offered during 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 city and Winterlude in Ottawa and 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 leasing prices helped to mitigate the rise in consumer prices in February. This change is explained by a drop in manufacturers suggested retail prices (MSRP) and an increase in incentives offered by car makers.

Other components, albeit to a lesser degree, contributed to the slowdown in the all-items index. For instance, prices for fresh fruits and vegetables fell 6.5% and 2.3% respectively. It is not unusual to see lower prices for these components at this time of the year. Prices were especially lower for grapes, grapefruit and tomatoes.

Canadians enjoyed a 1.6% drop in furniture prices between January and February 2008. This decrease is due mainly to lower prices on upholstered furniture.

Dropping 1.4% in February were prices for air transportation, which continued the downward movement, although at a slower pace, that began in January (-4.6%). Discounts were offered on flights to various destinations, and in particular to the United States.

Core index accelerates for the first time since June 2007

The Bank of Canada’s core index was up 1.5% in the 12 months to February 2008, a slight acceleration compared to the 1.4% increase observed in January. This was the first acceleration in this index posted since June 2007. Overall, homeowner’s replacement cost (+4.8%) was the main contributor to the growth in the core index in February.

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.

Between January and February 2008, the unadjusted core index rose 0.5% following the 0.1% increase posted during the previous month. This acceleration was mainly due to an increase in prices for travel tours that went from a 10.3% decrease in January to a 9.9% rise in February.

Energy index slows over 12 months due to slower growth in gasoline prices

The energy index climbed 9.7% during the 12-month period prior to February 2008, down from the 11.0% upswing in January. A slower 12-month growth in gasoline prices, which fell from 20.9% in January to 17.1% in February, is mainly responsible for this situation. The strong growth in gasoline prices resulted more from the relatively low level of this index last year than from any recent market developments. Price increases for heating oil and other fuels (+23.9%) and for natural gas (+2.5%) also exerted upward pressure on the 12-month change in this index. Helping to offset these increases were lower electricity prices (-0.8%).

On a monthly basis, the energy index increased 0.3%, down from the 0.6% rise posted in the previous month. This loss of momentum was due mainly to the price of heating oil and other fuels, which slid 0.9% on a monthly basis in February after climbing 2.5% in January. The 0.6% increase in gasoline prices was the main factor in the monthly advance of this index.

Seasonally adjusted CPI up 0.1% between January and February

On a seasonally adjusted basis, the all-items CPI advanced by 0.1% between January and February 2008, the same rate of growth was recorded for the previous period.

The seasonally adjusted core index was up 0.3% between January and February 2008 after increasing 0.2% during the previous period.