Consumer prices increased 2.2%

Consumer prices increased 2.2% during the 12-month period leading up to January 2008, a slightly slower rate of growth than the 2.4% posted in December. It was the slowest pace since August 2007.

For the fifth straight month, growth in the all-items index was due mainly to the 12-month rise in gasoline prices and mortgage interest cost. The upward pressure on the all-items index of these two components was mitigated, to some extent, by the one-percentage-point reduction in the goods and services tax (GST) that took effect in January, and by the reduction in motor vehicle prices.

Excluding gasoline, the price index increased only 1.3% in the year to January 2008.

The 12-month change in the Bank of Canada's core index, which is used to monitor the inflation control target, was 1.4% in January, the smallest gain since July 2005.

On a monthly basis, consumer prices fell 0.2% between December 2007 and January 2008, a reversal of the 0.1% increase between November and December 2007. This downturn was mainly due to seasonal declines in prices for tour packages and air transportation.

The core index rose 0.1% between December 2007 and January 2008, after declining 0.3% during the preceding period. This shift was due in part to women's clothing, prices for which fell only 0.4% in January compared with a decline of 4.7% in December.

12-month change: Drivers face higher gasoline prices

Gasoline prices increased 20.9% between January 2007 and January 2008, significantly faster than the 14.9% gain observed between December 2006 and December 2007. They continued to be the main factor in higher consumer prices.

The increase was due more to a sharp decline in pump prices in January 2007 than to recent gains. A year earlier, gasoline prices had fallen 3.1% between December 2006 and January 2007. In contrast, they rose 1.9% during the same period the following year.

Other price gains putting upward pressure on the year-over-year index were those for mortgage interest cost, homeowners' replacement cost, and heating oil and other fuels.

Prices for heating oil and other fuels soared 24.7%, although this fell short of the 27.1% gain observed in December. This comparatively slower growth occurred despite colder temperatures that gave rise to higher demand, and despite below-average inventory levels in the north-eastern United States.

Mortgage interest cost was up 7.6% in the year to January 2008, a slight acceleration from the previous month.

Homeowners' replacement cost, which represents the cost of maintaining a housing structure, increased 4.5%. This rise was slightly faster than the 4.4% increase in December.

The main factor mitigating the rise in consumer prices was a 4.9% decline in vehicle purchase and lease prices. These prices have dropped substantially during the past three months, the result of the combined impact of the GST reduction and manufacturer discounts on new models. This continuation of incentives came when the Canadian dollar was up relative to its US counterpart.

Prices for computer equipment and supplies fell 16.7% in January, continuing a downward trend. It was the steepest decline since August 2007. Declines in the prices of monitors and laptops were especially significant.

Prices for women's clothing fell 4.5% in January, the fastest decline since January 2005. Post-Christmas sales and the GST decline exerted downward pressure on women's clothing.

Consumer prices ease in Western provinces

The 12-month rise in consumer prices slowed, or remained steady, in all provinces.

Vehicle prices were the main moderating factor in the growth in consumer prices from coast to coast. The slowdown in these prices was especially significant in Alberta and in Saskatchewan.

In British Columbia, consumer prices edged up only 0.8%, as drivers in this province experienced the smallest 12-month rise in gasoline prices (+6.1%).

Month-to-month change: GST reduction contributes to lower consumer prices

A number of factors were behind the 0.2% drop in the all-items index between December 2007 and January 2008. Vehicle purchase and lease prices had a substantial downward impact, falling 0.5% during this period. This decline was the result of manufacturer incentives and the drop in the GST.

Another key factor in the monthly decrease of the all-items index was the tour package price index, which dropped 10.3%.

Air transportation prices fell 4.6%, driven mainly by a rollback in the cost of transatlantic flights and flights to Asia and the Pacific. Lower prices for air travel occur frequently in January.

Prices for men's clothing were down 3.4% on a monthly basis. This was the largest drop since June 2007. Men's clothing prices typically drop between December and January.

In contrast, a 1.9% rise in prices at the pump partially offset these downward pressures. This was a slight acceleration from the 1.7% increase observed in December. In January 2008, the price of a barrel of crude oil topped the US $100 level for the first time ever. The combined effect of high seasonal demand and lower production in OPEC (Organization of the Petroleum Exporting Countries) countries contributed to a decline in inventories.

Consumers paid 1.2% more for food purchased in stores between December 2007 and January 2008. The main contributor was a seasonal increase in the cost of fresh vegetables (+7.1%).

Mortgage interest cost rose 0.7%, a slowdown from the 0.8% increase posted in the previous four months. The impact of the change in interest rates on the rise in this component was virtually identical to that of the change in new housing prices.

The cost of municipal water climbed 5.2% between December 2007 and January 2008, the fastest increase since January 2006. Water prices rose in several municipalities. Higher prices for this component occur frequently at this time of year.

Impact of decline in GST

Since the price changes measured by the Consumer Price Index (CPI) take into account the value of the consumption taxes paid by Canadians, the one-percentage-point decrease in the GST announced by the government to take effect in January will have an impact on the CPI in that month.

A rough estimation of this impact is that the rate of change would be lower by 0.6% than it otherwise would have been if the entire amount of the decrease were transferred to consumers through lower prices. To the extent that businesses raise their margins at the same time the impact could be correspondingly less. Also, if some businesses had already reduced their prices in anticipation of the coming GST reduction (e.g. car dealers), the impact in January would also be less.

Available on CANSIM: tables 326-0009, 326-0012, 326-0015 and 326-0020 to 326-0022.

Definitions, data sources and methods: survey number 2301.

More information about the concepts and use of the CPI are also available online in Your Guide to the Consumer Price Index (62-557-XIB, free) from the Publications module of our website.

The January 2008 issue of the Consumer Price Index, Vol. 87, no. 1 (62-001-XWE, free) is now available from the Publications module of our website. A more detailed analysis of the CPI is available in this publication. Due to the February 18 holiday in Ontario, the paper version of the Consumer Price Index (62-001-XPE, $12/$111) will be available on February 20.

The February Consumer Price Index will be released on March 18.

For more information or to enquire about the concepts, methods or data quality of this release, call Client Services (toll-free               1-866-230-2248       ;               613-951-9606       ; fax: 613-951-1539; prices-prix@statcan.ca), Prices Division.