High produce prices push inflation

Data shows that lettuce prices last month were 18% higher than the year before

The consequences of the steady fall in the Canadian dollar are starting to push up inflation, with rising prices for imported goods like fresh fruits and vegetables leading the way.

Statistics Canada said Friday that the country's annual inflation rate reached two per cent last month, its highest mark since November 2014.

The January year over year inflation number was up from 1.6% in December.

The agency's latest consumer price index found that inflation climbed in every province last month at a time when the weaker exchange rate was contributing to higher costs for imported goods.

The effects of the steep decline in oil prices have played a big part in pushing down the loonie.

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Last month, the overall cost of food was up four per cent compared with a year earlier, with fresh vegetable prices up 18.2% and fruits up 12.9%.

A closer look at the data shows that lettuce prices last month were 17.9% higher than the year before, apples were up 16.6% and tomatoes up 11.9%.

"Very strong indeed, much stronger report than what we expected,'' Desjardins senior economist Jimmy Jean said of the headline inflation number.

"(The increase) is largely in the usual suspects these days—fruits and vegetables.''

Year-over-year prices moved upwards in every category of the index except for clothing and footwear, which saw a decrease of 0.3% compared with January 2015.

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Lower prices in January for natural gas, fuel oil and telephone services kept downward pressure on the inflation reading. Natural gas was down 18.6%, fuel oil down 15% and telephone services 2.5%, the agency said

The overall January inflation rate also hit the Bank of Canada's ideal target of two per cent.

The central bank watches the inflation rate very closely whenever it makes decisions on whether to move its benchmark interest rate. Its next policy meeting is scheduled for early next month.

Jean said he wouldn't be surprised if inflation moved above two per cent and, if it does, it likely wouldn't be a major preoccupation for the central bank since it maintains a target range of one to three per cent, he added.

READ: High produce prices drive shoppers to frozen fruit and root vegetables

Statistics Canada's core inflation rate, which excludes some volatile items such as gasoline, was 1.9% in December.

The agency also released its most recent retail sales data, which showed a drop of 2.2% to $43.2 billion in December compared with November, when sales rose 1.7%. Retail sales improved 0.1% month over month in October.

The last time retail sales saw a month-over-month drop of that magnitude was April 2010, when they fell 2.3%, the agency said.

Experts said the decrease was largely due to unseasonably warm weather and lighter than usual snowfalls in December as well as the impact of Black Friday, pre-holiday sales events that led to stronger numbers in November.

READ: Surge in fresh fruit and vegetable prices help push annual inflation up

"In the past couple of years we've kind of seen a pattern whereby (holiday) sales tend to be brought forward to November,'' Jean said.

Retail sales fell in almost every sub sector, with motor vehicle and parts dealers seeing the biggest decrease in dollar terms, the report said. They also went down in every province except for Prince Edward Island, where they ticked up 0.1%.

Brian DePratto of TD Economics said the retail trade report underscored the "softness'' in the economy over the final three months of 2015.

"Even when taken alongside more positive December manufacturing and wholesale reports, we nevertheless expect that the Canadian economy effectively stood still or contracted slightly in the fourth quarter,'' DePratto wrote in a research note to clients.

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