Soaring gasoline prices ignited a political storm last month, but they have yet to spark higher prices away from the pumps.
The core rate of the consumer price index, seen as a more reliable indicator of where future inflation lies, remained the same in September as it was a month earlier -- even as the broader index jumped to its highest annual rate in more than two years, Statistics Canada reported yesterday.
As a whole, consumer prices climbed 3.4 per cent, their highest level since March, 2003. But the core rate, which excludes the eight most volatile items, such as food and energy, remained at 1.7 per cent annualized, indicating companies are swallowing higher energy costs instead of passing them on to consumers.
"I think it's fairly encouraging that, so far, despite the huge increases we're seeing in energy prices, the core is remaining stable," said Rick Egelton, chief economist at Bank of Montreal.
The Statscan report showed there's been little pass-through from higher energy prices to broader increases in consumer prices and wage settlements, he said.
The gap between the headline and core rate of inflation was at its widest point in four years, according to a TD Economics report.
While most executives don't expect a huge jump in inflation in the coming year, a Bank of Canada survey showed this month that higher energy prices are eating into profits.
Still, other companies, especially those in the transportation industry, are trying to mitigate higher fuel costs by passing on the bills to customers through surcharges.
Yesterday's report reinforced expectations that the Bank of Canada will continue to raise interest rates to keep inflation at bay, economists said. Economists had forecast overall inflation would rise to an annual rate of 3.3 per cent, after increasing at a 2.6-per-cent rate in August, with the September core rate seen easing to 1.6 per cent.
The central bank signalled it will be mindful of the risks of a global economic slowdown when setting interest rates in the spring.
"We mentioned these risks to indicate that it's up to us to be cautious in the spring and summer of 2006 in our monetary policy," Governor David Dodge told the House of Commons finance committee.
He also warned of "further employment losses" in the hard-hit manufacturing sector.
Yesterday Paul Jenkins, senior deputy governor of the Bank of Canada, told MPs in Ottawa to expect higher energy prices to become a permanent feature of the economy and that the threat of pass-through exists.
The CPI rose as gasoline prices spiked 10.8 per cent in the month, the fifth-largest increase since 1949. Fuel oil and natural gas prices also surged as hurricane Katrina disrupted supply. Oil prices have since eased from record levels.
In a year-over-year basis, gasoline prices soared 34.7 per cent in September, Statscan said, a move that's sure to bite into household purchasing power.
"Higher crude oil prices, strong demand and uncertainty over future supply in the aftermath of hurricane Katrina pushed up prices at the pump," the agency said.
Prices for the purchase and leasing of autos, along with restaurant meals and homeowners' replacement costs all advanced in September. Students paid an average of 1.8 per cent more for tuition this year, although this was the weakest advance in 30 years, Statscan said.
At the same time, computer prices continued to decline: Equipment and supplies prices have plunged 21.6 per cent compared with last year, Statscan said.
On a month-to-month basis, inflation rose 0.9 per cent between August and September, one of the largest increases in 15 years. There hasn't been a similar monthly jump since the goods and services tax was introduced in 1991, with higher prices for women's clothing and gasoline leading the monthly jump.
September inflation was the highest in Prince Edward Island, where gas prices surged 20.2 per cent.
© The Globe and Mail
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