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O-Oh! Inflation in Canada

Expectations was for March 2011 inflation to be 0.6% and 0.2% (CPI & Core CPI), but the numbers were a lot higher:  1.1% and 0.7%.  More to the point, over the past 12 months consumer prices rose 3.3%, very close to the Bank of Canada’s target CPI upper edge (The February number was 2.2% -- so this is a very bad figure).


Digging in the data some of the biggest culprits were clothing/shoes (100% imported) and food (part of the food component is included in core inflation calculation).  Of course last week I commented on the difference in prices in Canada Vs. the U.S. and one of the sectors where Canada did worse was clothing and shoes… I guess Canadians are used to getting ripped off.  The implication here is that the BoC will have to look very closely at its interest rate policy; the second impact is that the apparels segment will probably face some margin compression going forward.

Seasonal:



What is even more worrying is the seasonally adjusted inflation number (Pure number no Core Vs. non-core): CPI rose 0.8% from February to March, the largest increase since October 2010. The food index, which was up for the fourth consecutive month, rose 1.6% in March. The transportation index, which includes gasoline, advanced 0.6% in March, following a 0.3% increase in February and continuing its string of increases since July 2010.

One niggling question:  Where is U.S. inflation?  Canada has seen its currency appreciate by nearly 7% over the past 12 months, and the U.S. and Canadian economies are tied to the hip.  Yet no trace of U.S. inflation.  Strange.

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