|
Core
inflation, excluding volatile food and energy prices,
declined for the seventh straight month to 1.4 per cent,
from 1.5 per cent in December.
The
Canadian dollar was down 0.66 cent to 98.58 cents US at
midafternoon, as the slowing pace of inflation gives the
central bank more reasons to cut interest rates to
stimulate the economy, something new governor Mark Carney
suggested Monday was uppermost in the bank's thinking.
Lower interest rates tend to make the currency less
attractive to investors.
The
big question is not if rates will come down, but by how
much and how quickly.
"Given
the significant downside risks and the benign outlook for
inflation, the Bank of Canada has significant room to be
aggressive and cut interest rates by 50 basis points (half
a percentage point) at their next meeting in March,"
said TD Bank economist James Marple.
Most
other private-sector bank economists also forecast that
Carney's first move as governor would be a dramatic one.
But
Douglas Porter of the Bank of Montreal sees reasons to
believe Carney will follow the incremental approach of his
predecessor, David Dodge. Porter noted that Carney used
the same language in his first public speech as governor
as the bank had used in its January monetary policy
review.
"It's
a close call and frankly I can see the other
arguments," said Porter. "The manufacturing
numbers and exports were very weak last week, but the job
market is still quite healthy and wage pressures are
rising meaningfully. There's still a lot of inflationary
pressures out there."
There
was more unanimity on where rates are going longer-term,
with most economists predicting the bank's policy-setting
overnight rate would slide all the way to three per cent
by mid-year, from four per cent now.
Inflation
has ceased to be a major concern for the economy in the
short term, said Meny Grauman, an economist at CIBC World
Markets.
"We
expect to see the headline and core rates to continue
their descent in 2008," he said.
Meanwhile,
the economy will continue to weaken, added TD's Marple, as
the "headwinds from a slowing U.S. economy"
depress exports and manufacturing.
In
new data signalling a slackening economy, Statistics
Canada said wholesale sales fell 2.9 per cent in December,
a much weaker outcome than the 0.2 per cent increase
expected by forecasters.
On
the inflation front, gasoline prices and, to a lesser
extent, mortgage interest costs were the key drivers of
the index for the fifth straight month.
Gas-pump
prices jumped by 20.9 per cent on an annual basis and
heating oil and other fuels soared 24.7 per cent. Mortgage
interest costs rose 7.6 per cent from a year ago, while
home prices rose 4.5 per cent.
But
many other items saw price drops as a result of seasonal
factors, the cut in the GST and the import-price benefit
of the high Canadian dollar.
Vehicles
were 4.9 per cent cheaper than in January 2007, computer
prices crashed 16.7 per cent, women's clothing dropped 4.5
per cent, vacation packages were down 10.3 per cent, air
transportation fell 4.6 per cent and the cost of men's
clothing dropped by 3.4 per cent.
"Substantial
decreases (in vehicle prices) have been observed in the
past three months, owing to the combined impact of the
reduction in the GST and discounts by manufacturers on new
models," the agency said.
"This
continuation of incentives came at a time when the
Canadian dollar compared favourably to its U.S.
counterpart."
The
agency said the GST cut would lower retail prices by about
0.6 per cent if the entire amount is passed on to
consumers, although the impact may be less if businesses
raise their profit margins or had already reduced prices
in anticipation of the GST reduction.
Statistics
Canada noted that inflationary pressure is slowing in the
hot economies of Western Canada.
Consumer
prices rose 3.6 per cent in Alberta last month on an
annual basis, down from 4.1 per cent in December. In
British Columbia, inflation was just 0.8 per cent, the
slowest rate in six years.
Source
: The Canadian Press, dated 18/02/2008
|
