NEWS

Higher vehicle prices push inflation higher

07/20/2012 10:30 EDT | Updated 09/19/2012 05:12 EDT
Consumer prices rose at an annual pace of 1.5 per cent in June, slightly ahead of the 1.2 per cent increase a month earlier.

Statistics Canada said Friday that higher prices for vehicles and electricity were the two biggest factors in the uptick.

The price of vehicles increased by 3.9 per cent over last year's level, in part because of heavy discounting in the summer of 2011, the data agency said.

The cost of electricity rose 5.9 per cent year over year in June, mostly as a result of increases in Ontario, Alberta and B.C.

Gas prices lower

But electricity prices were the only thing in the energy sector to increase, as gasoline prices were 1.8 per cent lower in June 2012 than they were in June 2011, and natural gas prices were also lower.

A sharp uptick in grain prices has gotten a lot of coverage lately, but it's not playing out yet in food prices at the retail level, the Statistics Canada data showed. Food prices were up two per cent in June compared to last year, down from a 2.5 per cent pace of gain in May.

"In Canada, history shows that there is a considerable lag (about 12 months) before higher commodity prices filter through to higher prices at grocery stores," TD Bank economist Dina Ignjatovic noted in a commentary following the data's release. "As such, should these higher grain prices be sustained, food could become a source of upward pressure on headline inflation down the road."

Overall, prices rose in every province in June, Statistics Canada said, and higher prices for vehicles were a factor in each.

The Bank of Canada's core index, which strips out volatile items such as food and energy prices, increased at an annual rate of two per cent in June. That's slightly ahead of the 1.8 per cent figure for May.

"This is a considerably softer than expected inflation print," Scotiabank economist Derek Holt said in a note. "Even the highest figures are not really threatening the [Bank of Canada's] two per cent inflation target."

MORE:cbcNews