Cauliflower ear

Just before Christmas we were at a local supermarket, selecting veggies to accompany the big meal. Any cauliflower, I asked one of the produce guys. He led me to a high shelf with precisely three of the cruciferous globes on it -- at almost $10 (Canadian) each.  We opted for rutabaga.

At our local pub there's now an insert in the menu, in which the owners express their regrets for the fact that they've had to up the price of the Caesar and Greek salads by a buck each, because of the high price of lettuce.

Economists are not supposed to rely on anecdotal evidence, but in this case it's OK, because StatsCan today produced data that show what every Canadian, whether they know anything about the dismal science or not, has been griping about for months: consumer prices are on the rise.  CPI rose 2.0 percent in the year to January, up from 1.6 percent in December.  Rising food prices are a major factor in the increase, along with unexpectedly high retail prices for gasoline. And behind both of those: the slumping exchange rate.

Given our climate,  Canadians are used to eating imported fruit and veg during the winter months. If you want to eat local vegetables at this time of the year, you'd better know a lot of recipes for mushrooms.  Imported produce was always going to be expensive this year: the largest single supplier is California, which has been in the grip of a severe drought for the past four years, though there has been more rain there this winter. But the collapse in the Canadian dollar has made the situation much worse, and of course it affects not only that cauli from Cali, but also the grapes from South Africa, the lemons from Peru and the peppers from Spain.

The man in the street gets this, sort of, but is much more incensed about the high price of gasoline. After all, don't we read every day about the bottom falling out of the oil market, and isn't Canada a major producer of the stuff?  The stock response -- that oil is traded in world markets in US dollars -- cuts little ice, and in any case isn't the whole story. Taxes on retail fuel are high and are largely at flat rates, so the crude price is irrelevant.  And the refineries are certainly taking advantage of the falling price of feedstock to increase their profit margins.

Now, 2 percent is the Bank of Canada's central target for inflation. If the rate were to go higher again next month, people might start to wonder when the Bank would look at raising interest rates to lean against the inflationary trend. That's something it would be most unwilling to consider, give the uncertain outlook for growth. Luckily, anecdotal evidence suggests Governor Stephen Poloz won't face that dilemma, at least not yet. Cauliflower was back down to about $3 a pop last week, and in the city close by us there's a fierce gas price war under way.  Even so, as long as the exchange rate stays near its recent lows, the Bank will have to keep one eye on price trends.