Consumer Price Index

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The 18.7% drop in gasoline prices substantially decreased the 12-month change of the All-items Consumer Price Index (CPI) from 2.1% in August to 0.7% in September. Excluding energy, the index increased from 1.5% to 1.8% during the same period.

The 12-month percentage change in the CPI is obtained by comparing the index for the current month with the index for the same month of the previous year. In the gasoline price index graph, the 12-month change is represented by the gap between the two curves. Hence, the 12-month change may decrease from one month to the next because the baseline used as a point of comparison has increased. As shown in the gasoline graph, the effect of Hurricane Katrina on the September 2005 index is a very important factor in explaining the differences in the 12-month changes from August to September 2006.

This means that energy, gasoline in particular, was the component that pushed down the CPI during this period. Since June 2004, the CPI excluding energy varied between 1.4% and 1.8%, suggesting relative moderation in price changes.

The CPI excluding eight of the most volatile components as identified by the Bank of Canada reported a similar behaviour in the All-items index excluding energy. This index posted a 12-month change of 1.7% in September compared with 1.5% in August.

On a monthly basis, after a 0.2% increase in August, the CPI posted a 0.5% decrease in September. The 17.4% drop in gasoline prices during this period was the main reason behind this shift.

The All-items index excluding energy rose 0.5% in September, compared with 0.2% in August. Higher prices for women's clothing and for the purchase and leasing of automotive vehicles were the main sources for this rise.

The All-items index excluding eight of the most volatile components identified by the Bank of Canada rose 0.5% in September, up from the 0.2% increase in August.

Notable drop in the 12-month variation of the All-items index

In September 2006, prices paid by consumers increased 0.7% over September 2005. This represents a sharp decline from the 2.1% increase posted in August, the result of lower gasoline prices.

Prices paid by consumers at the gas pump dropped 18.7% between September 2005 and September 2006. Such a decline has not been observed since December 2001, when gasoline prices plunged 19.3%.

Despite the increase in homeowners' replacement cost, mortgage interest costs and electricity, the recent trend in gasoline prices, combined with the significance of gasoline in the basket of goods, had a positive impact on the purchasing power of Canadian consumers over the past 12 months.

Homeowners' replacement cost, which represents the worn-out structural portion of housing and is estimated using new housing prices (excluding land), rose by 8.8% between September 2005 and September 2006. Since the beginning of the year, the 12-month increases posted by homeowners' replacement cost have been higher than 5.0%. Given its importance in the CPI basket, the increase in the replacement cost index pushed up the All-items CPI.

The growth in replacement cost was not consistent from province to province. It ranged from a high of 48.6% in Alberta to lows of about 4.0% in other large provinces such as Ontario (+4.4%), Quebec (+3.5%) and British Columbia (+4.6%).

Once again, Alberta's housing sector clearly stood out from its provincial counterparts. A prosperous oil and gas industry, along with high employment and strong consumer confidence, continued to spur the demand for new houses.

Mortgage interest cost, which measures the changes brought about by prices in the amount of mortgage interest owed by consumers, rose 3.3% between September 2005 and September 2006, a sharp increase from the 2.7% increase in August.

Although the upswing in prices for new properties was a significant factor in the increase in the mortgage interest cost index, it was the recent rise in interest rates that accounted for most of the climb in this index. More than 80% of the 0.6 percentage point rise, noted in the 12-month percentage change in the mortgage cost index between August and September 2006, came from higher interest rates.

Aside from replacement cost and mortgage interest cost, electricity prices constituted the third source of the increase in the All-items CPI. Between September 2005 and September 2006, electricity prices climbed 6.6%. This was primarily a reflection of the rate hikes that have occurred over the past year in Ontario, Quebec, British Columbia and Alberta, which once again led the way with a yearly increase of 18.4%.

Gasoline pushes down the monthly CPI

The CPI dropped 0.5% between August and September 2006, the most pronounced decrease since October 2005, when gasoline prices once again played the main role in pushing down the index (-0.5%).

With a monthly decrease of 17.4%, gasoline appeared to be the main source of the September decrease in the All-items index. Canadian drivers paid substantially less at the pump than they did during the summer, although there were provincial variations. The 20.7% reduction recorded in Alberta was the most substantial of any province and stood in marked contrast with Newfoundland and Labrador, which showed the smallest drop (-12.7%).

Although the slowdown in the monthly increase of gasoline prices has been observed in the last few months, a drop of this magnitude has never been recorded since the introduction of gasoline to the CPI basket. Previously, the largest drop (-11.2%) was recorded in November 2005 after Katrina's effects on refined petroleum were known.

Aside from cyclical factors associated with global energy markets, anticipated seasonal considerations, such as harvests of fruit and vegetables, where prices fell 4.6%, influenced the downward movement of the CPI in September.

However, higher prices for other goods and services, such as women's clothing, the purchase and leasing of automotive vehicles, natural gas and tuition fees, mitigated the drop in the All-items CPI in September.

The launch of the new fall women's collections by retailers translated into an 8.5% increase between August and September 2006, mitigating the drop in the All-items CPI as a whole.

The decrease in incentives offered by car manufacturers generated a 1.0% price increase in the purchase and leasing of automotive vehicles.

With a 6.3% increase compared to the previous month, natural gas prices also slowed the decline in the CPI. Alberta led the way with a 31.9% increase.

University students paid 3.0% more for their education in 2006. Higher tuition fees in Ontario (+5.7%) explained most of the upward trend in this index. The tuition fees index for a particular province takes into account the fact that some residents attend educational institutions in other provinces.

The seasonally-adjusted CPI declined between August and September

The seasonally-adjusted CPI declined 0.3% between August and September 2006. Many indexes exerted downward pressure, mainly the transportation index (-4.4%). The recreation, reading and education index (-0.2%) as well as the clothing and footwear index (-0.1%) also declined. These downward pressures were mitigated by increases in the shelter (+0.5%), food (+0.5%) and health and personal care (+0.4%) indices.

The seasonally-adjusted CPI excluding eight of the most volatile components identified by the Bank of Canada rose 0.3% between August and September 2006, just like in the previous month.

All-items index excluding eight of the most volatile components

The All-items CPI excluding eight of the most volatile components identified by the Bank of Canada posted a 12-month increase of 1.7% in September 2006. The primary factors that contributed to this increase were homeowners' replacement cost (+8.8%), electricity prices (+6.6%), the purchase and leasing of automotive vehicles (+1.8%), and restaurant meal prices (+2.1%). This increase was offset to some extent by lower prices for computer equipment and supplies (-20.3%) and men's clothing (-4.4%).

Between August and September 2006, this index rose 0.5%. Women's clothing (+8.5%), the purchase and leasing of automotive vehicles (+1.0%), tuition fees (+3.0%), and homeowners' replacement cost (+1.3%) were the most important factors behind the rise in this index.

The Bank of Canada identified eight of the most volatile components as being: fruit, fruit preparations and nuts; vegetables and vegetable preparations; mortgage interest cost; natural gas; fuel oil and other fuel; gasoline; inter-city transportation; and tobacco products and smokers' supplies.

Energy

The energy index fell 9.4% between September 2005 and September 2006, compared to a 7.1% increase in August.

All fossil fuel prices declined, reflecting the current world conditions in which the upward pressure on prices has been partially offset by the apparent slowdown in economic activity in the United States, which accounts for approximately one-quarter of the world's consumption of petroleum products. Gasoline, at the top of the list with an 18.7% decline, was the primary source of the drop in the index, followed at some distance by natural gas (-3.9%), fuel oil (-4.3%), and fuel, parts and supplies for recreational vehicles (-7.4%). Electricity pushed the index in the opposite direction, with a 12-month increase of 6.6%.

On a monthly basis, the energy index fell 9.1% between August and September 2006. Gasoline (-17.4%), fuel oil (-2.9%), and fuel, parts and supplies for recreational vehicles (-8.6%) all contributed to the decrease in the monthly index, while natural gas (+6.3%) and electricity (+0.3%) exerted upward pressure.

Available on CANSIM: tables 326-0001, 326-0002, 326-0009, 326-0012 and 326-0016 to 326-0018.

Definitions, data sources and methods: survey number 2301.

More information about the concepts and use of the CPI are also available online in Your Guide to the Consumer Price Index (62-557-XIB, free) from the Publications module of our website.

Available at 7 a.m. online under The Daily module of our website.

The September 2006 issue of the Consumer Price Index, Vol. 85, no. 9 (62-001-XIB, free) is now available from the Publications module of our website. A paper copy is also available (62-001-XPB, $12/$111).

The October Consumer Price Index will be released on November 22.

For more information, or to enquire about the concepts, methods or data quality of this release, call Client Services Unit (toll-free 1-866-230-2248; 613-951-9606; fax 613-951-1539; prices-prix@statcan.gc.ca), Prices Division.

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