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Consumer prices rose 1.3% in the 12 months to December, following a 1.0% increase in November. December’s increase was the largest since February 2009.

The rise in the all-items Consumer Price Index (CPI) was due primarily to gasoline prices, which exerted upward pressure on the CPI for the second consecutive month. This follows an extended period in which they were the main contributors to year-over-year declines in overall consumer prices.

In December, gasoline prices were 25.6% higher than they were in December 2008. This follows a 14.1% rise in November. December’s increase was the largest since September 2008.

Overall, energy prices went up 5.9% in the 12 months to December, following a 1.3% increase in the 12 months to November.

12-month change: Six of the eight major components in the CPI post increases

Six of the eight major components of the CPI recorded price increases in December. The exceptions were shelter and clothing and footwear.

Transportation prices, which rose 4.7% in the 12 months to December, exerted the largest upward pressure on the CPI, primarily reflecting higher gasoline prices. This was the second consecutive 12-month increase for this component. It followed 12 months of year-over-year declines between November 2008 and October 2009.

However, prices for passenger vehicles were 3.3% lower than the same period last year.

Food prices rose 1.7%, matching the increase in November. Prices for dairy products and eggs rose 1.9% while prices for non-alcoholic beverages went up 4.8%.

Other major contributors to the increase in food prices were food purchased from restaurants, sugar and confectionery, lettuce, and bakery and cereal products.

On the other hand, prices fell for fresh fruit, pre-cooked frozen food preparations, and potatoes.

The cost of household operations, furnishing and equipment rose 1.9%. Upward pressure came from communications, other household goods and services, child care and domestic services, and paper, plastic and foil supplies.

Downward pressure on the household operations, furnishing and equipment index primarily came from price decreases in furniture and household textiles.

Recreation, education and reading costs advanced 1.6% in the 12 months to December. Major contributors to the increase were tuition fees, cablevision and satellite services, and the purchase and operation of recreational vehicles. In contrast, prices for computer equipment and supplies and home entertainment equipment, parts and services continued to fall.

Broad-based price advances occurred in the health and personal care component (+3.0%).

Shelter costs declined 1.7% between December 2008 and December 2009, identical to the year-over-year change in November 2009. This drop was mainly the result of a 31.2% decline in natural gas prices and a decrease in mortgage interest cost.

The mortgage interest cost index, which measures the change in the interest portion of payments on outstanding mortgage debt, fell 4.9% in December, following a 4.0% decrease in November. Also, homeowners’ replacement cost declined 1.2%.

Upward pressure on the shelter component came from homeowners’ maintenance and repairs costs (+3.3%) and property taxes (+4.3%).

Atlantic provinces post higher price increases than Western provinces

Prince Edward Island (+3.0%), New Brunswick (+3.0%), and Nova Scotia (+2.6%) posted the largest increases in the 12 months to December. The most significant upward pressure on prices in all provinces came from higher gasoline prices, which rose by as much as 31.9% in Prince Edward Island compared with December 2008.

As well, prices for fuel oil and other fuels (+0.8%) were no longer exerting significant downward pressure on the CPI in December, the first 12-month increase since November 2008. These energy products are used intensely in home heating in Atlantic Canada, while the rest of the country relies mostly on electricity and natural gas.

A 2.1% price increase in Quebec was driven by higher prices for gasoline and food purchased from restaurants.

In Ontario, prices rose 1.2%. This was due primarily to rises in gasoline prices (+26.8%) and passenger vehicle insurance premiums (+11.8%). However, natural gas prices fell 41.8%.

Consumer prices went up 0.6% in Alberta and 0.4% in British Columbia, where gasoline prices went up 21.6% and 24.4%, respectively. On the other hand, shelter costs fell 3.7% in Alberta and 3.1% in British Columbia, significantly more than the 1.7% decline posted at the national level.

Month-over-month seasonally unadjusted CPI decreases

Consumer prices prior to seasonal adjustment fell 0.3% from November to December, after increasing 0.5% from October to November.

Five of eight major components of the CPI recorded month-over-month decreases in December: clothing and footwear; household operations, furnishings and equipment; recreation, education and reading; health and personal care; and alcoholic beverages and tobacco products.

Clothing and footwear (-4.7%) and household operations, furnishings and equipment (-0.9%) exerted the most downward pressure on the monthly CPI.

Declines in the clothing and footwear index were mainly due to downward price movements for men’s, women’s, and children’s clothing.

Furniture and household textiles (-4.1%) and household equipment (-1.4%) were two major downward contributors to the household operations, furnishings and equipment index.

Recreation, education and reading costs fell 0.9% in the wake of month-over-month declines in prices for both video equipment and traveller accommodation.

Monthly increases in food prices (+0.2%) were driven by fresh vegetables (+5.7%), particularily tomatoes and lettuce.

Increases in the transportation index (+0.1%) were mainly due to upward price movements for the purchase of passenger vehicles (+2.0%) and air transportation (+2.0%). Gasoline prices dropped 2.9% in the month of December.

Shelter costs remained unchanged from November to December.

Seasonally adjusted monthly CPI decreases

On a seasonally adjusted monthly basis, the CPI fell 0.1% from November to December, after rising 0.5% from October to November. Contributors to the decline were lower prices for household operations, furnishings and equipment (-0.8%), clothing and footwear (-1.3%), and alcoholic beverages and tobacco products (-0.1%).

The seasonally adjusted monthly CPI has gone up in six of the past eight months.

12-month change in the Bank of Canada’s core index

The Bank of Canada's core index advanced 1.5% over the 12 months to December, matching the increase observed in November.

On a month-to-month basis, the core index prior to seasonal adjustment declined 0.3% from November to December.

The seasonally adjusted monthly core index went up 0.1% from November to December, following a 0.2% increase in November.

Annual change: Consumers paid less for energy in 2009

This release provides the annual average movement in components of the CPI for 2009 as a whole. Annual average indexes are calculated by averaging index levels over the 12 months of the calendar year. Annual averages should not be confused with the 12-month change in the CPI, which compares indexes for a given month to indexes for the same month a year earlier.

For 2009 as a whole, consumer prices rose by 0.3%, a significantly smaller increase than the 2.3% rise posted in 2008. The increase posted in 2009 was the smallest since the annual increase of 0.1% in 1994.

Energy prices exerted the most significant downward pressure on the CPI in 2009. Overall, prices for energy were 13.5% lower in 2009, contrasting with the 9.9% increase posted in 2008. Gasoline prices fell 17.5% in 2009, while prices for natural gas and fuel oil and other fuels dropped 20.1% and 29.9%, respectively.