What impact did insurance have on Canada’s inflation rate?

What impact did insurance have on Canada’s inflation rate?

What impact did insurance have on Canada’s inflation rate? The country’s annual inflation rate rang in below expectations last month at 1.2%, largely under the weight of lower food costs, Statistics Canada said Thursday.

The national inflation reading for November was weaker than October’s rate of 1.5%, the federal agency’s latest consumer price index found. A consensus of economists had predicted 1.4% inflation for November, according to Thomson Reuters.

Statistics Canada also released unexpectedly strong retail trade figures Thursday that showed October sales were up 1.1% compared to September - a third straight monthly gain.

Taken together, the fresh numbers for retail sales and inflation should be seen as a positive, said CIBC chief economist Avery Shenfeld.

“This was a bit of a Christmas present for the Canadian economy in the sense that we had some heat in retail activity, but the tame readings on inflation will allow the Bank of Canada to stay with very low interest rates that’s helping spur some of the consumption spending,” Shenfeld said in an interview.

The Statistics Canada report said lower prices for fresh produce, meat and travel tours compared to a year earlier helped pull down the overall inflation rate. The cost of lettuce fell 18.7%, tomatoes dropped 11% and travel tours declined 4.2%.

The federal agency said higher costs for items like automobiles, homeowners’ insurance and electricity helped contribute to the upward forces behind the overall rate. Home and mortgage insurance was up 4.4% compared to the year before, while the cost of purchasing and leasing vehicles rose 3% and electricity bills climbed 3.5%.

On retail trade, Statistics Canada said total sales eclipsed the $45-billion mark in October.

Statistics Canada said the biggest boosts came from higher sales at gasoline pumps, where they rose 3.8%, and at general merchandise stores, which saw an increase of 1.9%.

Revised figures showed that month-over-month retail sales rose 0.8% in September and 0.2% in August. Those increases followed a decline of 0.1% in July.

Shenfeld said he thought there could be an “upside surprise” in Thursday’s retail trade figures, but the results was “even brighter” than he had expected.

He said the strength in the retail numbers is likely connected to the federal government’s enhanced child-benefit program, which started distributing cheques in July.

National Bank senior economist Krishen Rangasamy wrote in a research note to clients that he was particularly encouraged by data that showed a continued rise in discretionary spending. This means, he added, purchases other than groceries, gasoline and personal-care items.

For the first time, Statistics Canada released also three new measures of core inflation that the Bank of Canada will use to examine the underlying rate.

The change, announced in October, was made in an effort to manage the risks associated with the shortcomings of having just one indicator.

The three new indicators - known as CPI-common, CPI-median and CPI-trim - all showed weaker year-over-year inflation for November than their readings for October. CPI-common had a reading last month of 1.3%, CPI-median had 1.9% and CPI-trim had 1.6%.

Statistics Canada says CPI-common tracks common price changes adjusted to remove the effects of indirect taxes, CPI-median represents the cumulative monthly median inflation rate for the 12-month period leading up to the current month and CPI-trim excludes items that are at the high and low extremes of the monthly rates of change of all price indexes.

The Canadian Press


Related stories:
British Columbia to increase insurance rates by 4.9%
Has leap in interest rates gone too far for insurance companies?
 
1 Comments
  • Rudy Haugeneder 2016-12-24 3:26:18 PM
    We got lucky in 2016 but 2017 is going to be a "sad" year. Here's why:
    Larry Elliott
    BBC Economics editor
    Sunday 28 June 2015 17.07 BST

    The international body that represents the world’s central banks has issued a stark warning that an unprecedented period of ultra-low interest rates mask deep weaknesses in the global economy and threaten to be the trigger for the next financial crisis.
    In its annual report, the Basle-based Bank for International Settlements says that what used to be considered “unthinkable” risks becoming the “new normal”, with clear risks for future stability.
    BIS said the need for abnormally low level of interest rates to be kept in place six years after the trough of the global financial crisis in early 2009 reflected a broader malaise.
    It added that monetary policy – the willingness of central banks to print money and keep borrowing costs low – was bearing too much of the burden and that governments needed to rely more on structural reform to secure sustainable growth.
    BIS was the one global body to point out in advance of the financial crash of 2007 that booming asset prices could cause problems even during periods of low inflation, and its latest warning will be seen as a call for its central bank members to start returning monetary policy to more normal settings.
    “Globally, interest rates have been extraordinarily low for an exceptionally long time, in nominal and inflation-adjusted terms, against any benchmark”, the report said.
    “Such low rates are the most remarkable symptom of a broader malaise in the global economy: the economic expansion is unbalanced, debt burdens and financial risks are still too high, productivity growth too low, and the room for manoeuvre in macroeconomic policy too limited. The unthinkable risks becoming routine and being perceived as the new normal.”
    The US Federal Reserve is likely to be the first central bank in any major advanced country to raise interest rates. Wall Street expects the Fed to tighten policy later this year, with the Bank of England forecast to follow in 2016. The European Central Bank and the Bank of Japan are currently still using quantitative easing – the creation of electronic money – to boost activity.
    BIS noted that it was proving “exceedingly difficult” to understand the malaise affecting the global economy, but said the problem stemmed from a failure to come to grips with financial booms and busts that left deep and lasting scars.
    “In the long term, this runs the risk of entrenching instability and chronic weakness. There is both a domestic and an international dimension to all this. Domestic policy regimes have been too narrowly concerned with stabilising short-term output and inflation and have lost sight of slower-moving but more costly financial booms and busts.
    “And the international monetary and financial system has spread easy monetary and financial conditions in the core economies to other economies through exchange rate and capital flow pressures, furthering the build-up of financial vulnerabilities. Short-term gain risks being bought at the cost of long-term pain.”
    BIS added that far from being the solution, persistently low interest rates risked becoming the problem. “Rather than just reflecting the current weakness, low rates may in part have contributed to it by fuelling costly financial booms and busts. The result is too much debt, too little growth and excessively low interest rates. In short, low rates beget lower rates.”
    As evidence of its thesis, BIS said that between December 2014 and the end of May 2015, on average around $2tn (£1.27tn) in global long-term sovereign debt, much of it issued by euro area sovereign states, was trading at negative yields.
    At their trough, interest rates on French, German and Swiss bonds were negative out to a respective five, nine and 15 years, with the result that investors were paying for the privilege of holding government debt.
    “Such yields are unprecedented”, BIS said. “Yet, exceptional as this situation may be, many expect it to continue. There is something deeply troubling when the unthinkable threatens to become routine.”
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