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All Quiet on the Inflation Front

By Jock Finlayson

Statistics Canada’s latest update on the Consumer Price Index (CPI) confirms that inflation remains muted across the country and all but invisible here in British Columbia. This may come as a surprise to those convinced the cost of living is climbing, but an examination of the full array of consumer purchases indicates an absence of apparent upward pressure on the overall price level.

In June, the total CPI in British Columbia posted a small year-over-year drop (0.5%), marking the third consecutive month of declines on a y/y basis. Nationally, the CPI rose by 1.2% y/y. Total food prices in BC were down by 1% in June compared to one year ago, mainly due to lower prices for meat, bakery and cereal products. Prices were also lower for restaurant meals, where the elimination of the HST has reduced the tax-inclusive prices charged to consumers. In contrast, prices were higher for fresh fruits and vegetables. Other components of the CPI exhibiting year-over-year price declines in June were shelter, clothing, personal care products and services, pharmaceuticals, recreational goods/services, and home entertainment equipment. CPI components showing higher prices included water/fuel/electricity, transportation, and education.

Inflation has been trending lower in BC relative to Canada, in part because the disappearance of the HST on April 1 trimmed tax-inclusive prices for restaurant meals and for a number of services that previously attracted HST but aren’t subject to the restored retail sales tax, the PST. Measured inflation in BC will continue to reflect the effects of the recent change in the province’s sales tax regime during the rest of 2013 and through the early months of next year.

Even ignoring the impact of the HST/PST transition, the underlying inflation picture in BC is benign. Slow economic growth and intense competitive pressure in the markets for many goods and services consumed by British Columbians are expected to keep a lid on the CPI going forward. The Business Council forecasts that on an annual basis, inflation in BC will average about 1% this year before edging up to around 1.5% in 2014.