Analysis

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Consumer prices rose 0.1% in the 12 months to May 2009, down from the 0.4% increase in April.

The slowdown in the 12-month Consumer Price Index (CPI) was due primarily to an 18.3% year-over-year price drop for energy products. Excluding energy, the CPI rose 2.3%.

The decline in the energy price index was due more to high prices in 2008 than to recent market developments. On a month-to-month basis, energy prices rose 4.4% from April to May.

Of the eight major components, upward pressure on the CPI continued to come primarily from increasing prices for food.

While food prices remained strong, the increase has been slowing since March 2009. Excluding food, the CPI fell 1.2% in the 12 months to May.

Continued price drops for gasoline and passenger vehicles drove transportation costs 8.2% lower, making this the most significant downward contributor to the CPI in the 12 months to May.

A 0.2% 12-month drop in the shelter cost index also put downward pressure on the CPI in May. It was the first drop since July 2002. Price pressures for shelter have eased significantly in 2009, after increasing 4.4% on average in 2008.

12-month change: Food costs remain high but shelter costs slow and transportation costs decline

Of the eight major components in the CPI, six recorded increases in the 12 months to May: food; household operations, furnishings and equipment; clothing and footwear; health and personal care; recreation, education and reading; and alcoholic beverages and tobacco products.

Out of these major components, upward pressure on the CPI came largely from an increase in prices for food while downward pressure was largely due to a drop in transportation costs.

Food costs rose 6.4% in the 12-months to May, following a 7.1% increase in April. This was the slowest rate of growth since the 6.1% rise in October 2008.

Costs for food continued to be pushed up primarily by prices for food purchased from stores, which rose 7.4% in May. The increase in prices for food purchased from stores was slower than the increase of 9.5% in March and 8.3% in April.

Price increases for food were widespread in the 12 months to May. Large increases were recorded for fresh vegetables (+16.4%), non-alcoholic beverages (+14.0%), fresh fruit (+13.9%) and beef (+9.1%).

Gasoline prices fell 25.1% from May 2008 to May 2009 following a 12-month decline of 24.7% in April. The 12-month decline in May was due more to high prices in 2008 than to recent market developments. On a month-to-month basis, gasoline prices rose 8.3% from April to May.

The cost of purchasing passenger vehicles fell 6.6% in May, following an 8.3% year-over-year drop in April.

An increase in passenger vehicle insurance premiums tempered the overall decline in costs for transportation.

The slowdown in costs for shelter was due primarily to reduced upward pressure from mortgage interest costs. Stronger price declines for fuel oil and other fuels, natural gas and homeowner’s replacement costs also contributed to the slowdown in May.

The mortgage interest cost index, which measures the change in the interest portion of payments on outstanding mortgage debt, rose 1.9% in May 2009 compared with May last year. This was slower than the 3.2% rise posted in the 12 months to April, and significantly slower than the average increase of 8.0% observed in 2008. The gradual slowing in the evolution of the mortgage interest cost index reflects the downward trend in mortgage interest rates and housing prices.

Prices for fuel oil and other fuels declined 40.6% in May after falling 33.5% in April.

In addition, natural gas prices fell 18.8% in the 12 months to May on the heels of a 17.5% drop in April. Natural gas prices fell in all provinces, especially in Alberta and Nova Scotia where consumers paid 42.4% and 37.1% less in the 12 months to May, respectively.

Homeowner’s replacement costs fell 3.4% in the 12 months to May. This was a larger 12-month drop than the 2.8% fall recorded in April and the 2.1% drop in March.

Year-over-year consumer prices slow down in most provinces

While components responsible for the change in consumer prices varied considerably, the main downward contributors in all provinces were declines in prices for gasoline and other energy components. Rising prices for food was the main upward contributor.

Compared to April, consumer prices fell at a faster pace in Prince Edward Island and Nova Scotia in the 12 months to May.

In Prince Edward Island, consumer prices fell 1.1% year-over-year in May after falling 0.3% in April. The slowdown was due primarily to steeper declines in prices for gasoline. Gasoline prices fell 27.2% in the 12 months to May, larger than the 23.6% drop observed in April. Reduced upward pressure from electricity prices and larger price drops for fuel oil and other fuels also contributed to the slowdown in Prince Edward Island.

Larger year-over-year price drops for fuel oil and other fuels also largely accounted for the slowdown in Nova Scotia. Prices for fuel oil and other fuels fell 38.6% in the 12 months to May after falling 32.5% in April. Larger price declines for gasoline also contributed to the slowdown in Nova Scotia. Overall, consumer prices in Nova Scotia fell 1.1% in the 12 months to May, after falling 0.4% in April.

In Ontario consumer prices rose 0.4% in the 12 months to May, on the heels of the 0.6% rise in April. In Quebec, consumer prices remained relatively stable, advancing at a 12-month rate of growth of 0.1% in May, following a 0.3% rise in April.

Month-to-month seasonally unadjusted CPI increases

Consumer prices prior to seasonal adjustment rose 0.7% from April to May, after falling 0.1% from March to April.

Upward pressure on the monthly CPI came primarily from prices for gasoline followed by passenger vehicle insurance and traveller accommodation costs. Consumers paid an overage of 8.3% more at the pump in May compared to April. This increase follows a 1.0% rise in April and is the fifth consecutive increase.

A drop in prices for women’s clothing (-3.1%), mortgage interest costs (-0.7%) and homeowner’s replacement costs (-0.7%) helped to dampen the overall rise in the monthly CPI in May.

Consumer prices in all provinces gained momentum in May from April. This was largely due to an increase in pump prices across the country.

Seasonally adjusted monthly CPI increases

On a seasonally adjusted monthly basis, the CPI rose 0.2% from April to May, after falling 0.2% from March to April. May’s increase was due primarily to a 2.7% rise in the transportation price index. A monthly increase in prices for gasoline in May compared to April largely accounted for the increase in the transportation index.

12-month change in the Bank of Canada’s core index

The Bank of Canada's core index advanced 2.0% over the 12 months to May, up from the 1.8% rise posted in April.

On a month-to-month basis, the core index prior to seasonal adjustment increased 0.4% in May, following the 0.1% increase posted from March to April.

The seasonally adjusted monthly core index increased 0.3% from April to May, after increasing 0.2% from March to April.