On Wednesday of last week, Statistics Canada released its latest Consumer Price Index(CPI) data for August 2011. While overall CPI rose 3.1%, up from 2.7% in July, this was mainly due to higher food and energy costs, and price increases in these two areas have not historically spurred broader-based price inflation.
Core inflation, a more refined number that strips out volatile inputs like food and energy, rose 1.9% – also higher than the 1.6% increase we saw in July. While some analysts made much of the fact that we are now approaching the Bank of Canada’s (BoC’s) 2% target for core inflation, I think any talk of an imminent rate increase is still very premature, based in part on BoC Governor Mark Carney’s speech last week in Saint John, New Brunswick. These were some of his key comments:
The bottom line: While the latest CPI number came in higher, it’s clear that the Bank of Canada is much more worried about our lack of economic growth than our rate of inflation. If that’s true, the next move in short-term (variable) rates will be down, not up.
David Larock is an independent mortgage planner and industry insider specializing in
helping clients purchase, refinance or renew their mortgages. David’s posts
appear weekly on his blog at integratedmortgageplanners.com/blog).