Ottawa Oil fuels inflation to five-year high

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Thursday March 16, 2000 Oil fuels inflation to five-year high

Statistics Canada, The Ottawa Citizen / Inflation Up in February: Consumers paid 2.7% more for goods in February than they did a year ago.

Fuel-fired inflation hit a five-year high of 2.7 per cent last month, and in several provinces, including Ontario, broke through the ceiling of the Bank of Canada's target range.

Further, inflation is headed higher, analysts said in the wake of a report yesterday by Statistics Canada that virtually ensures that the Bank of Canada will match the widely expected quarter-point increase in U.S. interest rates later this month.

"The news is only likely to get worse in the coming months, with ongoing energy-price pressures once again raising the spectre of a run-up towards the top end of the Bank of Canada's one- to three-per-cent inflation threshold," said CIBC World Markets economist Warren Lovely.

"With Canada's economy showing no signs of letting up, the balance of risks remains skewed towards higher inflation down the road," agreed TD Bank economist Marc Levesque.

"The main contributor to February's annual increase was, once again, energy prices," Statistics Canada said, noting that the 64-per-cent jump in fuel prices from a year earlier is the greatest on records dating back to 1950, though from historically low prices.

"With gasoline prices flaring higher again in March, next month's report could see Canadian inflation flirting with the three-per-cent threshold," Nesbitt Burns economist Sherry Cooper said. "The main message is that inflation, while still below U.S. trends, is moving higher, providing the Bank of Canada with more reason to continue gradually tightening policy."

The annual inflation rate, measured as the change in prices for consumer goods and services from a year earlier, was up from 2.3 per cent in January.

Consumers in some parts of Canada have been especially hard hit, with the inflation rate at nearly four per cent in three of the Atlantic provinces and over three per cent in Ontario.

Among the Atlantic provinces, only in Prince Edward Island, where there's a legislated ceiling on fuel prices, was inflation below three per cent -- though at 2.8 per cent, just below.

The rate in the other provinces ranged from just under three per cent in Alberta and Quebec to a mere 1.9 per cent in British Columbia.

Royal Bank economist Allan Seychuk said the differences in inflation rates in part reflect the varying energy demands and costs for provinces.

Some analysts took comfort, however, in the fact that core inflation, which excludes volatile energy and food prices, was a tame 1.6 per cent despite higher mortgage interest costs, restaurant food prices, and air fares.

However, Carl Weinberg, economist at New York-based High Frequency Economics, warned that the 0.5 per cent increase in core prices during the month is "a bit more scary."

Yet he argued that there's still no justification for an increase in Canadian interest rates. "The question, of course, is not what we think, but what the bank thinks," he added.

http://www.ottawacitizen.com/business/000316/3766716.html

-- Martin Thompson (mthom1927@aol.com), March 16, 2000

Answers

Fuel at the pumps went up another three cents a litre today.

-- Rachel Gibson (rgibson@hotmail.com), March 16, 2000.

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