Inflation eases in August to 1.1 per cent

Year-on-year rates in line with market forecasts
By Louise Egan
|payroll-reporter.com|Last Updated: 09/20/2013

OTTAWA (Reuters) — Canada's annual inflation rate edged down in August to 1.1 per cent from 1.3 per cent in July, as expected, ensuring there is no pressure on the Bank of Canada to raise interest rates any time soon.

Higher shelter costs, particularly rent and natural gas, were the main driver ofinflation in the 12-month period, Statistics Canada said on Sept. 20.

The inflation rate last touched the Bank of Canada's two per cent target in May 2012.

The bank has kept its benchmark interest rate on hold at one per cent since September 2010 and says it will continue to do so as long as inflation is muted, the economy has significant slack and household debt continues to improve.

The August report held few surprises, said Mazen Issa, a macro strategist at TD Securities.

"In terms of the outlook for inflation we're looking for a very soft grind higher... the implication from that is the Bank of Canada should have lots of breathing room to remain sidelined to nurture the broader economic recovery," he said.

In a speech on Sept. 18, central bank chief Stephen Poloz said he expected the economy to be able to support stronger activity without stoking inflation because businesses are starting to invest in new capacity.

"Although Steve Poloz sees better times ahead, the tame inflation climate gives him the luxury of waiting a long time for that to unfold before even thinking about a rate hike," Avery Shenfeld of CIBC World Market Economics said in a note to clients.

Prices for most items rose at a slower annual pace in August than in July. Price growth accelerated only for food and for clothing and footwear, Statistics Canada said.

The consumer price index (CPI) was flat on a monthly basis. Analysts in a Reuters poll had forecast a 0.1 per cent climb in the month and an annual rate of 1.1 per cent.

Core CPI, closely watched by the Bank of Canada, rose 0.2 per cent in August from July for an annual core rate of 1.3 per cent, matching expectations.

Shelter costs jumped 1.1 per cent in the year through August compared with 1.3 per cent in July on increases in rent, natural gas and property taxes, while mortgage interest costs declined.

Transportation prices increased 1.3 per cent versus 2.7 per cent in July. Consumers paid 2.2 per cent more for gasoline in August after seeing a 6.1 per cent hike in July.

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