August 20, 2010

OTTAWA: New harmonized sales taxes in some provinces pushed up Canada's inflation rate last month, but the increase was still softer than what many economists had forecast.

Canada's annual inflation rate rose by half a point in July to 1.8 per cent.

Statistics Canada says changes in sales taxes in Nova Scotia, Ontario and British Columbia affected consumer prices in July.

``In July, consumer prices were affected by changes in consumption taxes in Nova Scotia, Ontario and British Columbia,'' the agency said.

The governments of British Columbia and Ontario introduced new harmonized sales taxes in July. Nova Scotia also bumped up its HST by two percentage points.

The Bank of Canada had forecasted the new taxes would increase inflation in the coming months, and they did. Prices were higher across the board, with increases in seven of the eight major components.

``The start of the harmonized sales tax in B.C. and Ontario last month was the dominant factor here,'' BMO Capital Markets deputy chief economist Doug Porter wrote in a note to investors.

``Overall, these results are milder than expected _ given that Canada just had one of the bigger price 'events' for quite a few years (the HST), and overall inflation remained below two per cent is quite remarkable.''

Added Porter: ``While the HST made all the noise last month, the fact is that underlying inflation remains quite tranquil, neither threatening to dip into deflation terrain nor pushing above the (Bank of Canada's annual) two per cent target.''

He says the modest price gains give the central bank time to breathe before hiking interest rates this fall.

``This just adds one more arrow into the quiver of reasons the Bank may take a time out from further rate hikes this fall,'' Porter wrote.

The biggest increases were in energy prices, which were up 7.9 per cent from where they were a year earlier. Within the energy price index, the cost of electricity rose 9.8 per cent in July.

Transportation costs went up 2.7 per cent in July, while gas prices were higher by 4.8 per cent. As well as paying more for gas and vehicle insurance premiums, Canadians paid 1.7 per cent more to buy vehicles in July.

The cost of housing also rose 2.9 per cent. In addition to paying more for electricity, Canadians also paid more for natural gas.

Food prices went up 1.1 per cent, with higher prices recorded in both restaurants and grocery stores.

Health and personal care products went up 2.8 per cent. Recreation, education and reading materials went up 0.8 per cent as Canadians paid more for cable and satellite services. However, the cost of home entertainment and computer equipment fell.

Only clothing and footwear registered lower prices in July.

Regionally, consumer prices rose in every province except Manitoba. Ontario registered the largest year-over-year increase as consumer prices rose 2.9 per cent.

In British Columbia, consumer prices were also higher by two per cent. Electricity prices increased by 36.7 per cent. Prices at the pump and the cost to eat out also jumped.

Prices in Nova Scotia increased 1.7 per cent in July.

Consumer prices fell 0.3 per cent in Manitoba in July after decreasing the month before. It cost less to buy gasoline, natural gas and home and mortgage insurance in the province.

Core inflation, which strips out several volatile components and consumption taxes such as the HST, came in at 1.6 per cent.

Source: http://www.smarthomeowners.ca