Inflation rises as gas prices soar.

This is from the National Post.
No doubt as the increased cost of transportation and of manufacture of goods produced from petroleum products works its way into the prices of other commodities the inflation rate will increase even more. This will include prices for food items. We could very well be facing what I call recflation, a combination of recession and inflation.



Thursday, June 19, 2008
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Inflation rises as gas prices soar
Canwest News Service Published: Thursday, June 19, 2008
Peter Redman/National Post
OTTAWA -- Canada's inflation rate jumped to 2.2% in May from 1.7% the previous month as gasoline prices continued to soars, Statistics Canada said Thursday.
May marked the second consecutive monthly rise in the consumer price index and was the sharpest increase since January 2007. On a monthly basis, the CPI rose one% from April.
"The acceleration in consumer prices in May was mainly a reflection of the 12-month increase in gasoline prices,"the federal agency said. "This acceleration in gasoline prices occurred as crude oil prices almost doubled between May 2007 and May 2008. Gasoline prices increased substantially across the country, rising the most in Quebec and Ontario."
Statistics Canada said gas prices rose 15% in May from a year earlier, up from a year-on-year pace of 11.6% in April. Excluding gasoline prices, the 12-month growth in the CPI in May was 1.6%, it said.
Meanwhile core inflation, which excludes volatile energy and food prices and which the central bank monitors for underlying price pressures, rose 1.5% in May from the same month last year -- the same pace as the 12-month increase in April.
"Lower prices for passenger vehicles dampened the upward pressure on the core index," the agency said.
Last week, the Bank of Canada surprised markets by not cutting its key interest rate and expressing concern over growing inflationary pressures. The key rate remains at 3%.
Thursday's CPI number surpassed the central bank's 2% target.
Most economists had expected May's inflation rates would be around 1.9%.
"There are signs that spiking energy prices are spilling into other goods, though gasoline is still the main inflation source. The Bank of Canada noted last week that total inflation could approach 3% later this year," said BMO Capital Markets economist Douglas Porter.
"Given today's result, a 3% [year-on-year[ reading as early as June is quite possible [as prices fell last June]. Thus, today's report will only deepen the bank's new-found concerns on the inflation front."
Bank of Canada governor Mark Carney will likely further explain the bank's decision to hold rates steady during a speech Thursday night at the University of Calgary.
The Canadian dollar was only marginally higher after the inflation numbers were released. It closed at 98.22 cents US on Wednesday.
Charmaine Buskas, senior economics strategist at TD Securities, said the rise in inflation "is indeed, troubling, and will certainly lend support to the case that the next move for the Bank of Canada is to raise rates."
"The question is timing and in our view the market has gotten ahead of itself a bit by pricing in a rate hike by the end of the year. We expect the Bank to remain on hold through the first half of 2009 and only hiking rates by the second half of the year."
Percentage rate of inflation (April to May / May to May):
Total (+1 / +2.2)
Newfoundland and Labrador (+0.8 / +2.8)
Prince Edward Island (+1.9 / +4.1)
Nova Scotia (+1.4 / +3.5)
New Brunswick (+1 / +2.1)
Quebec (+1.1 / +2.3)
Ontario (+1 / +1.8)
Manitoba (+0.7 / +1.6)
Saskatchewan (+0.7 / +3.2)
Alberta (+0.7 / +3.7)
British Columbia (+0.9 / +2.1)
Whitehorse (+1.6 / +3.7)
Yellowknife (+0.7 / +4)
Iqaluit (+0.7 / +1.7)
Source:Statistics Canada
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