Ottawa - Bank of Canada governor Stephen Poloz’s view that rising prices for meat and other products is a temporary trend does not sit well with Terry Scanlon, who sells hot dogs a few blocks from Poloz’s office in Ottawa.
Soaring costs for meat forced Scanlon to increase the price of his wares at Hot Diggitty Dog by 25 percent last month, one of the biggest price hikes since he set up his cart near Parliament Hill in 1983.
“I haven’t made as much as in years before,” Scanlon, 70, said in an interview, adding he doubts the beef price gains will be reversed any time soon. “Definitely the costs have gone up for meat.”
Scanlon’s C$2.50 (R24.20) hot dog underscores the inflation quandary facing Poloz ahead of his next rate announcement today: While overall inflation remains tame, so-called core prices for items such as meat, telephone services and cars keep rising.
Statistics Canada’s inflation report last week showed meat prices rose 11 percent in April from a year earlier and telephone services jumped 6.3 percent. Petrol prices dropped 21 percent.
“It’s just astronomical right now and it’s still on the rise,” said Michael Frizzell, who owns a meat shop in Charlottetown, Prince Edward Island, where Poloz spoke last week.
“This isn’t a short-term thing. This is going to be around for a while.”
Even with the core rate close to the fastest since 2008, Poloz is betting the slack in the economy he expects to persist through next year will keep inflation from surging past his 2 percent target.
While falling energy prices slowed headline inflation to 0.8 percent last month, the bank’s less-volatile measure of core prices that excludes eight items such as fruit and natural gas was close to a seven-year high at 2.3 percent.
Inflation is “noisy” because of shifts such as higher prices for meat and telephone services, tumbling energy costs and a weaker dollar that boosts import prices, the governor said in a May 19 speech in Charlottetown.
“That’s a lot of moving parts, and the impact of each of these transitory forces has to be estimated; we can’t just measure them,” Poloz said.
“All of this has certainly made it more challenging to distinguish the trend from the temporary.”
The core rate overstated the case and the true “underlying trend” of inflation was probably about 1.6 percent to 1.8 percent, Poloz said. The economy needed stimulus to restore full output and keep inflation sustainably at a 2 percent target, the governor said.
Small-business owners like Scanlon are predicting faster price increases even with lower energy costs. An April survey by the Canadian Federation of Independent Business shows that its members, which include 109 000 small businesses, expect prices to rise by 2.2 percent over the next year. That matches the fastest in monthly data going back to the start of 2009.
Bloomberg