Consumer Price Index

Weaker gasoline prices in each province slowed the increase of the Consumer Price Index to its lowest level in eight months in August. Consumers paid 1.7% more in August 2007 for the goods and services included in the CPI basket than they did in August 2006, substantially lower than the increase of 2.2% posted in the previous four months.

The growth was driven largely by mortgage interest cost and homeowners' replacement cost. However, lower prices for computer equipment and supplies, video equipment, and fresh vegetables exerted significant downward pressure.

The all-items index without energy increased 2.3% between August 2006 and August 2007, slightly slower than the 2.5% gain reported in July.

The Bank of Canada's core index, used to monitor the inflation control target, increased 2.2% from August 2006. This is a slight slowdown from the 2.3% increase posted in July. The rise in homeowners' replacement cost drove most of the increase in August.

On a monthly basis, prices declined 0.3% between July and August 2007, the fastest decline in nearly a year. The biggest factors were lower gasoline prices and, to a lesser extent, lower prices for vehicle purchases and leases, and fresh vegetables.

The all-items index without energy remained unchanged between July and August, whereas the core index rose 0.1%. Both indexes had increased 0.1% between June and July.

12-month increase: Costs for owned accommodation remain strong as gasoline prices ease

The increase in prices in August was largely driven by higher costs for owned accommodation and, to a lesser extent, food. Falling gasoline prices exerted significant downward pressure.

Canadian homeowners saw their costs increase again in August. Mortgage interest cost contributed significantly, rising 6.1% between August 2006 and August 2007. This increase was the most pronounced since June 1991 and followed a 12-month change of 6.0% in July.

This growth was largely driven by higher prices for new houses. However, mortgage renewals at higher interest rates have played a larger role in the growth in mortgage interest cost in the past two months.

Homeowners' replacement cost increased by 6.0% in August, down from the 6.2% observed in July. This rate of growth is well below the average annual change noted since early 2007 (+6.6%). This cost represents the worn-out structural portion of housing and is estimated using new housing prices (excluding land).

Higher property taxes (+3.0%) and rents (+1.7%) also had an impact on housing costs.

Consumers spent 2.0% more for food purchased in grocery stores in August 2007 than in August 2006. This increase was mainly the result of higher prices for meat (+3.5%), dairy products (+3.1%), and bakery products (+3.7%). Prices for restaurant meals rose 3.5%.

The slower growth in consumer prices was largely the result of gasoline prices, which fell in every province. Following a 2.8% drop in July, average prices at the pump were 7.7% lower in August 2007 compared with the same month in 2006. This was the most pronounced decrease in this component since last January.

Lower gas prices can partially be explained by the downturn in the average price of crude oil in August compared with the preceding month. With the strength of the Canadian dollar in relation to the US greenback, local refineries were able to pay less for crude oil in August 2007 than they did during the same period in 2006.

A 17.4% decline in prices for computer equipment and supplies also had a significant impact on the change in prices in August.

Prices for video equipment were down by 8.6%, as they were the previous month.

Consumers were also able to take advantage of price decreases of 4.9% for fresh vegetables and of 2.3% for fresh fruits in August. Year-over-year price decreases for potatoes and lettuce had a significant impact on vegetable prices.

The 12-month increase in the CPI slows in all provinces

The 12-month increase in the CPI was slower in all provinces, largely because of falling gasoline prices.

The only provinces in which consumer prices rose faster than the national average in August were Alberta (+4.7%) and Saskatchewan (+2.4%). This gap has persisted since February 2007 for Saskatchewan and since August 2005 for Alberta.

Consumer prices increased less than 1% in Newfoundland and Labrador (+0.2%) and Quebec (+0.8%). The slowing of price increases in these two provinces was strongly associated with lower gasoline prices.

The drop in gasoline prices ranged from 6.4% in Newfoundland and Labrador to 13.2% in New Brunswick.

The cost of owned accommodation was the largest contributor to the increase in consumer prices in all provinces.

From July to August 2007: Gasoline moderates the rise in consumer prices

Consumer prices fell 0.3% between July and August 2007, the most substantial monthly decline in this index since September 2006.

The decrease was largely the result of gasoline prices and, to a lesser extent, vehicle purchases and leases, and fresh vegetables. These decreases were partly offset by the rise in mortgage interest cost, electricity, men's clothing, and homeowners' replacement cost.

Gasoline prices fell 4.9% in August, a strong decline compared with the modest 0.1% decrease between June and July 2007.

Canadian drivers also enjoyed a 1.8% reduction in the cost of vehicle purchases and leases. Manufacturers' discounts on 2007 models continued to account for the downward movement of new vehicle prices.

Prices for food purchased in stores dropped 0.7% as a result of lower prices for fresh vegetables, with local harvests swelling supply in this market.

These decreases were partly offset by the growth in other components, such as mortgage interest cost, which rose 0.7% in August, down slightly from the 0.8% growth in July. This slowdown can largely be attributed to the softening in new housing prices.

Homeowners' replacement cost increased 0.5% between July and August 2007, identical to the increase in the previous month.

Available on CANSIM: tables 326-0009, 326-0012, 326-0015 and 326-0020 to 326-0022.

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 August 2007 issue of the Consumer Price Index, Vol. 86, no. 8 (62-001-XWE, free) is now available from the Publications module of our website. A paper copy is also available (62-001-XPE, $12/$111). A more detailed analysis of the CPI is available in this publication.

The September Consumer Price Index will be released on October 19.

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

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