Soaring energy prices boost inflation to 3.9%

MARIAN STINSON

Saturday, June 16, 2001

Soaring energy prices lifted Canada's inflation rate to the highest level in nearly a decade in May, forcing consumers to dig deeper to fill up gas tanks and warm their homes.

The overall increase in consumer prices climbed to an annual rate of 3.9 per cent in May from 3.6 per cent in April, the largest rise since November of 1991, Statistics Canada reported yesterday. Energy prices were a driving force behind the gains, rising 16 per cent from a year ago and accounting for one-third of the overall increase.

"The consumer price report may have made some hearts skip a beat, but there was much less cause for alarm . . . than appears at first glance," said Marc Lévesque, senior economist at Toronto-Dominion Bank.

Seasonal factors such as food prices accounted for a fair share of the monthly rise, and the end of the energy price rebate in Alberta accounted for one-quarter of the total price increase during the month.

In Alberta, natural gas prices soared 122 per cent during the month.

"While the Bank of Canada will see through the flurry of one-shot and seasonal factors that has boosted the [consumer price index] over the past couple of months, it will remain on its toes for any evidence that the ongoing increases in energy costs are feeding through to other consumer prices," Mr. Lévesque said.

So far, there is very little evidence that surging energy costs are spilling over to other components of the CPI, he added.

The Bank of Canada is expected to cut interest rates by one-quarter of a percentage point in July, he said.

The core rate of inflation, which excludes volatile items such as food and energy, remained unchanged from a month earlier at 2.1 per cent, Statscan said.

Bank of Canada Governor David Dodge said he expects the headline rate will remain above 3 per cent until the end of the summer. "In the course of the fall it will decelerate rapidly, and by the end of the year it will be 2 per cent, provided we don't get some other crazy surprise in energy prices."

Gasoline prices advanced 5.4 per cent from April to May, on the heels of a 5.5-per-cent rise in April, as demand increased at the start of the summer travelling season.

Sarah Thorpe, 30, an accounting supervisor with AMJ Campbell Van Lines in Markham, Ont., has watched her entertainment budget disappear as the cost of gasoline climbed in the past few months by about $15 a week to $45.

Since buying a house in Oshawa last fall, she has been shocked by rising heating costs, as well, which showed up in a 14.6-per-cent increase in the natural gas component of the CPI in May from a month earlier.

After opening a $240 heating bill one month last winter, she immediately lowered the thermostat. "I opened the bill, and thought, 'Oh my God, what have I done?' " she said.

"Now all my money is going to necessities," she said, with little left over for movies, clothing or dining out.

For her employer, the cost of diesel fuel for a tractor-trailer truck to carry household furnishings to Calgary from Toronto has risen sharply from three years ago, to $2,200 from $1,100. "Our van operators have been feeling the pinch," said Denis Frappier, executive vice-president of AMJ Campbell.

Many of the van line's corporate customers have agreed to a 2-per-cent surcharge to cover the added fuel cost, he said.

Down the road, the outlook appears brighter for energy prices, said Alister Smith, deputy chief economist at Canadian Imperial Bank of Commerce.

"The saving grace is that even with the strong economy later this year and into next year, energy prices should come off a bit as more supply comes on stream."

The CPI also moved higher because of rising costs for traveller accommodation, cigarettes, fresh fruit, and home maintenance and repairs.

Higher cigarette taxes lifted the prices 3.3 per cent from a month earlier, after a combined federal and provincial tax increase of $4 a carton was introduced in Ontario, Quebec, Nova Scotia, New Brunswick and Prince Edward Island.

http://www.theglobeandmail.com/gam/ROB/20010616/RINFL.html

-- Martin Thompson (mthom1927@aol.com), June 16, 2001