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The Consumer Price Index November 2008

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Analysis

Consumer prices slowed to 2.0% in the 12 months to November 2008, down from the 2.6% and 3.4% increases recorded in October and September, respectively. The slowdown in November was due primarily to gasoline prices, which were 14.4% below November 2007 levels, and far offset increases for food and shelter items.

Excluding gasoline, the Consumer Price Index (CPI) rose 2.8% in the 12 months to November, up from the 2.0% rise recorded in October. This was the fastest pace of growth since May 2003. The jump was due primarily to smaller price declines for purchasing and leasing passenger vehicles and higher food prices.

The slowdown in consumer prices in November occurred in the wake of a slowing global economy and a depreciation of the Canadian dollar in relation to the US dollar. The Canadian dollar lost 20.6% against the US dollar in November 2008 compared to November 2007.

The 12-month decline in gasoline prices was the first since August 2007 and the largest since September 2006. On a monthly basis, gasoline prices fell 21.4% from October to November 2008.

The most significant individual contributors to November’s 12-month increase in consumer prices were mortgage interest costs, natural gas prices and prices for various food items, particularly bakery and cereal products and fresh vegetables.

Factors mitigating the overall increase, in addition to the drop in gasoline prices, included continuing price declines for purchasing and leasing passenger vehicles, women’s clothing and computer equipment and supplies.

On a month-to-month basis, consumer prices prior to seasonal adjustment fell 0.3% from October to November, following the sharp 1.0% drop from September to October. The monthly drop in prices for gasoline was the primary downward contributor, while a rise in prices to purchase and lease passenger vehicles partially mitigated the fall in the monthly CPI.

On a seasonally adjusted monthly basis, consumer prices fell 0.3% from October to November, after falling 0.6% in the previous period.

12-month change: Food costs lead the way as major contributor to the growth in the CPI

Of the eight major components in the CPI, five recorded increases in the 12 months to November.

Chart 1
Transportation: Strong slowdown recorded

Rising food costs were the most dominant factor contributing to November’s increase in consumer prices. Excluding food, the CPI advanced only 0.9%.

Food prices gained momentum for the ninth consecutive month. Following a 12-month rise of 6.1% in October, food prices rose 7.4% in November, the largest increase since November 1986. Bakery and cereal product prices were up 12.9%, and fresh vegetables, which are largely imported, rose 28.9%.

Despite this sustained rapid growth, food prices have increased by an average 3.2% so far this year, thanks to tepid increases recorded at the beginning of the year.

Shelter costs, the second largest contributor, rose 3.9% in November, slightly faster than the 3.8% increase posted in October. Price increases for mortgage interest costs and natural gas were the largest upward contributors to the increase in the shelter component.

While mortgage interest costs were up 6.8%, the pace of growth has been slowing as a result of a slowdown in new housing prices and easing interest rates.

Natural gas prices rose 16.8% in November. Increases were particularly strong in Nova Scotia (+28.5%), Ontario (+22.2%) and Saskatchewan (+21.2%).

Thanks primarily to a sharp 14.4% drop in gasoline prices, the transportation price index declined 3.0% in November, its first decrease since August 2007 and the largest drop since September 2006.

Gasoline prices continued to decelerate in the wake of the global economic slowdown. The average price of a barrel of crude oil was reported at US$57.44 (CAN$69.97) in November 2008, compared with US$94.62 (CAN$91.51) in November 2007.

Chart 2
The gasoline price index continues to slide

Also contributing to the fall in transportation costs was a 2.7% decline in prices for purchasing and leasing passenger vehicles, compared to a 9.0% decrease in October.

In November of each year, models of automotive vehicles from the current year (2008) are replaced by new models (2009) in the CPI sample. As a result, the purchase and leasing of passenger vehicles price index in November reflects prices for 2009 vehicle models.

Increasing prices for passenger vehicle insurance (+4.2%) and air transportation (+6.8%) dampened the overall decline in transportation costs in November.

The clothing and footwear price index continued its downward trend, falling 2.4%, slower than the 2.8% drop recorded in October. A larger number of sales on clothing items was primarily responsible for the decrease.

The provinces: Growth in consumer prices slows in all provinces

Growth in consumer prices slowed in all 10 provinces in November, with the most pronounced slowdowns in two Atlantic Provinces.

In Nova Scotia, prices rose on average 1.3% in the 12 months to November, compared with 3.4% in October. In Prince Edward Island, the growth slowed from 3.9% to 2.3%.

Chart 3
Consumer prices slows across the country

In almost every case, the slowdown was due to falling gasoline prices, which declined by as much as 17.1% in Nova Scotia and Ontario compared with November 2007.

Factors contributing to the rise in consumer prices varied considerably, but rising food prices were common across all provinces.

Month-to-month change: Gasoline prices push down consumer prices

Consumer prices fell a further 0.3% in November, a slowdown from the sharp 1.0% drop experienced in October. The 21.4% fall in gasoline prices was the most significant downward contributor to November’s fall.

Chart 4
Gasoline prices continue to contract

Also helping to ease consumer prices in November were price declines for traveller’s accommodation (-7.8%) and fuel oil and other fuels (-13.1%).

The most significant upward contributor and the component responsible for the slowdown in the monthly CPI between October and November, was prices to purchase and lease passenger vehicles. Prices for purchasing and leasing automotive vehicles climbed 7.2% from October to November. The purchase and leasing of passenger vehicle price index now reflects prices for 2009 vehicle models.

Also putting upward pressure on consumer prices in November was an increase in prices for fresh vegetables, which rose 20.0%. This represents an above normal increase as the average rise for November over the 2000-2007 period was 9.7%.

Consumers in all provinces except Alberta experienced further slowdowns in consumer prices in November. In Alberta, price increases for purchasing and leasing passenger vehicles (+8.8%), natural gas (+16.6%) and electricity (+4.9%) substantially mitigated the impact of declining gasoline prices.

Chart 5
On a monthly basis, consumer prices continue to fall in all provinces except Alberta

On a seasonally adjusted monthly basis, consumer prices in Canada fell 0.3% from October to November, after falling 0.6% in the previous period. After adjustments for seasonality, a 3.2% drop in costs for transportation was the primary downward contributor, while price increases for food (+1.0%) continued to remain the most significant upward contributor.

Bank of Canada’s core index posts strong increase

The Bank of Canada's core index advanced 2.4% over the 12 months to November, much higher than the 1.7% rate of growth posted in October. The increase is due primarily to smaller price decreases for purchasing and leasing passenger vehicles. In the 12 months to November, prices to purchase and lease passenger vehicles fell 2.7% compared to the more robust 12-month drop of 9.0% in October.

On a month-to-month basis, the core index prior to seasonal adjustment rose 0.7%, after falling 0.2% from September to October. The rise is due primarily to the 7.2% increase in prices to purchase and lease passenger vehicles from October to November.

The seasonally adjusted monthly core index rose 0.5% from October to November, after posting no growth from September to October.

In November, the gap between the 0.3% month-over-month drop in the seasonally adjusted CPI and the 0.5% rise in the seasonally adjusted core index is attributable to gasoline, which pushed down the CPI but which is not accounted for in the core measure.