At the CMHC forecast seminar in Calgary last week, there was a lot of talk from the economists about inflation, interest rates, house prices etc (of course!). One major theme was that as the US economy continues to cool, the economies in Ontario and Quebec will take a major hit, being mostly manufacturing based economies dependant on exports to the US. Another major theme was that Alberta’s economy will continue to roll along, even if oil and gas prices drop further. In fact, one economist suggests oil would have to get down to the $35 a barrel mark before production would ease in Alberta. The point of all this was, if Ontario and Quebec slow down, the national inflation rate will drop, and the bank of Canada will have to lower interest rates. This would help those in Alberta trying to afford homes at the new price levels we’ve seen recently, and therefore help sustain the higher prices. The article below paints a bit of a different picture, with Alberta’s economy cooling slightly, while Ontario and Quebec have slightly warmed up. The bank of Canada sets the interest rates next on Dec. 5, so I suppose we’ll just have to wait and see.
Red-hot’ Alberta cooling?
Inflation decline shows economy moderating
Tamara Gignac, CanWest New Services; with files from The Canadian Press
Published: Thursday, November 23, 2006
Alberta’s inflation rate dipped in October on lower gasoline and heating costs — another hint the province’s torrid economic growth is cooling slightly.
"The fact that inflation is easing is another in a long list of small signals that things are slowing down a bit," said Frank Atkins, an economics professor at the University of Calgary’s Haskayne School of Business.
"We’re not headed for a recession, but things are going from red-hot growth to moderate."
Alberta’s annual inflation rate fell to three per cent from 3.7 per cent in September. That’s still significantly higher than the Canada-wide rate of 0.9 per cent, which inched up slightly from 0.7 per cent the previous month.
It marks the first time in more than two years that national inflation has remained below one per cent in back-to-back months — a trend attributed largely to slumping gasoline prices.
Canada’s core inflation — a measure that excludes volatile items such as gasoline, fresh produce and the impact of the cut in the GST –jumped 2.3 per cent, pressured by higher prices for homeowners’ replacement costs, mortgage interest costs and electricity.
The data, released Wednesday by Statistics Canada, sent the Canadian dollar up 0.4 of a cent to 87.68 cents US.
But even with a higher core rate — watched closely by the Bank of Canada as a vehicle for setting interest rates — there’s no suggestion that inflation is about to take off, said David Tulk, an economist at TD Bank.
The figures are consistent with an economy operating just above its productive capacity, Tulk observed.
"In all likelihood, this will be relatively short-lived as mounting evidence suggests that real GDP growth in the third quarter will remain in the neighbourhood of two per cent, marking the second consecutive quarter of below-trend growth."
In Calgary, the new housing boom appears to be moderating after a record streak of nine consecutive months of single-detached construction. Similarly, Alberta’s sizzling pace of retail spending is also slowing signs of slowing down, with Statistics Canada reporting a 1.1 per cent drop in sales for the month of September.
Nevertheless, "the unprecedented surge" of Alberta’s real estate prices is such that it masks the national picture," said National Bank of Canada economist Stefane Marion.
He argues that Canada’s inflation pressures are narrowly based, and that Alberta’s housing costs, once stripped out of the equation, leave a national core inflation rate of only 1.8 per cent.
"In our opinion . . . our central bank should not be setting interest rates in response to a relative price change in one province," Marion said, echoing a view expressed by the struggling manufacturing sector and political leaders in provinces such as Ontario.
Instead, the "Bank of Canada must stand ready to cut rates in 2007" if economic growth continues to crawl along at less than its potential rate, or slows even more, he said.
The bank, which strives to keep inflation at about two per cent, next sets interest rates on Dec. 5.
tgignac@theherald.canwest.com
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Inflation
The annual inflation rate was 0.9 per cent in October, says Statistics Canada. Here’s what happened in the provinces.
(Previous month in brackets):
- Alberta 3.0 (3.7)
- Saskatchewan 1.5 (1.3)
- Manitoba 1.4 (0.9)
- British Columbia 1.1 (1.0)
- Newfoundland and Labrador 0.7 (0.2)
- Quebec 0.6 (0.0)
- Ontario 0.6 (0.2)
- Nova Scotia 0.2 (0.2)
- New Brunswick -0.5 (-0.3)
- Prince Edward Island -0.8 (-0.2)
