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The Daily


Tuesday, January 23, 2007
December 2006 

Consumer prices accelerated for the fourth consecutive month in December.

Please consult the release "Consumer Price Index: A preview of the upcoming basket update" in today's Daily.

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Consumers paid 1.6% more for the goods and services in the Consumer Price Index (CPI) basket in December 2006 than they did a year earlier. It was a slightly faster pace than the 12-month change of 1.4% in November.

Still, December's increase was below the average gain of 2.0% in the all-items CPI for 2006 as a whole, and well below the much hotter pace in the first eight months of 2006.

December's upturn was due mainly to the second consecutive 8.2% monthly increase in homeowners' replacement cost, representing the worn-out structural portion of housing. Since August 2006, this index has posted monthly increases of over 8.0%.

In addition, drivers paid slightly more for gasoline. But this was offset by another decline in natural gas prices in the wake of milder weather.

Excluding energy, the 12-month change in the all-items index rose 1.7% in December, the result of sustained growth in prices for owned accommodation. Over the past four months, this index has remained relatively stable.

On a monthly basis, consumer prices edged up 0.2% between November and December last year, the same increase as in the previous month. The monthly index, excluding energy, slipped 0.1% in December after a 0.2% increase the month before.

The core Consumer Price Index, used by the Bank of Canada to monitor the inflation-control target, rose by 2.0% between December 2005 and December 2006, compared with 2.2% the previous month. The monthly core CPI slipped 0.2% in December, following a 0.3% increase in November.

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12-month change: Prices in housing sector keep increasing

December's 12-month change of 1.6% in the all-items index was attributable primarily to continually rising costs paid by homeowners in recent months, especially in Alberta.

For a second straight month, homeowners' replacement cost, which represents the worn-out structural portion of housing and is estimated using new housing prices (excluding land), shot up by 8.2%. Since August 2006, increases in this index have exceeded 8.0%.

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Most of this increase in replacement cost can be accounted for by the ongoing demand for new houses, fuelled by rising employment and a vigorous economy. In November 2006, building permits reached yearly all-time highs thanks to a strong increase in residential construction in the western provinces, and Alberta in particular, where the economic boom is continuing.

In Alberta alone, replacement costs soared 43.1% in December, the main factor behind the rise in this index at the national level. Price increases elsewhere played a much more modest role. Even so, replacement costs rose 10.3% in Saskatchewan and 6.8% in Manitoba.

Mortgage interest cost, on the rise since early 2006, continued its upward movement with a 4.9% gain. This index was relatively stable in 2005.

Also contributing to the 12-month change in the all-items index were price increases in electricity. Electricity prices rose 6.7% between December 2005 and December 2006, thanks primarily to hikes of 23.7% in Alberta and 7.5% in Ontario.

Rising production costs contributed to a 2.5% increase in the price of foods purchased in restaurants. Higher tobacco taxes in some provinces resulted in a 4.7% rise in cigarette prices.

On the downside, milder temperatures brought a sixth consecutive monthly decline in natural gas prices, which fell 7.5% between December 2005 and December 2006. Almost all Canadian consumers benefited, except residents of Alberta, where natural gas prices rose 3.3%.

Prices for purchasing and leasing vehicles fell 1.9% between December 2005 and December 2006, the result in part of fierce competition among manufacturers who were offering discounts on new 2007 models.

Elsewhere, the growth in the all-items CPI was slowed by continually falling prices for computer equipment and supplies, as well as lower prices for men's and women's clothing.

Month-over-month: Slight increase in gas prices

Gasoline prices, as well as increases for cigarettes, household maintenance and repairs and mortgage interest costs, pushed up the all-items index between November and December. They were partly offset by declines in men's and women's clothing and in some non-alcoholic beverages.

Gasoline prices climbed 4.1% after several months of declines. This growth was slightly less than the 4.6% rate posted six months earlier in July.

Gasoline prices were up from coast to coast, except in Manitoba (-0.1%). The biggest increase, 6.8%, occurred in Prince Edward Island. Other increases ranged from 6.6% in Nova Scotia to 1.0% in Saskatchewan.

Cigarette prices rose 1.7% between November and December 2006. Prices for household maintenance and repairs were up 1.7%, while the cost of mortgage interest edged up 0.4%.

Discounts associated with fall sales, combined with holiday sales, reduced the price of women's clothing by 5.4%. It was the biggest decline ever for the month of December, and the largest decrease in women's clothing since a 5.8% plunge in April 2006.

It was the same case with prices for men's clothing, which fell 4.1%, the biggest decline since a 5.1% drop in June 2003.

Prices were down 3.3% for non-alcoholic beverages, the result of holiday season discounts on soft drinks.

Annual change: Homeowners paid more this year

This release provides the annual average movement in components of the Consumer Price Index for 2006 as a whole. Annual average indexes are calculated by averaging index levels over the 12 months of the calendar year.

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Annual averages should not be confused with the 12-month change in the CPI. This compares indexes for a given month to indexes for the same month a year earlier.

For 2006 as a whole, prices rose on average by 2.0%, compared with 2.2% in 2005, 1.9% in 2004 and 2.8% in 2003. The increase in 2003 was the biggest annual average increase since 1991.

In 2006, lower gasoline prices helped offset a strong upturn in prices in the owned accommodation sector.

Available on CANSIM: tables 326-0001, 326-0002, 326-0009, 326-0012 and 326-0015 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 December 2006 issue of the Consumer Price Index, Vol. 85, no. 12 (62-001-XWB, free) is now available from the Publications module of our website. A paper version is also available (62-001-XPB, $12/$111). A more detailed analysis of the CPI is available in this publication.

The January Consumer Price Index will be released on February 20.

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

Tables. Table(s).