Inflation rate drops
Posted Aug 19, 2011 7:16 am.
This article is more than 5 years old.
The pace of inflation eased in July as increases in the price of gasoline slowed, giving the Bank of Canada room to keep interest rates at their exceptionally low levels.
Statistics Canada said Friday the consumer price index rose at an annual pace of 2.7 per cent in July, down from a 3.1 per cent increase for June.
In Alberta, inflation was up 1.9 per cent, slightly down from 2.1 per cent in June, while here in Calgary, inflation rose 1.8 per cent, up from 1.6 per cent the previous month.
Nationally, it was the first time inflation was below a pace of three per cent since February.
TD Bank deputy chief economist Derek Burleton said the “inflation genie” appeared to remain tucked in the bottle.
“It will give the Bank of Canada some wiggle room to keep rates low during this period of global uncertainty,” Burleton said.
“The thinking has shifted now to the fact that economic growth is probably going to slow and the fact that core inflation is still below the Bank of Canada’s target (of two per cent) means that inflation really isn’t a major risk at the moment.”
The core index, which is used by the Bank of Canada to help guide its decision on interest rates, gained 1.6 per cent following a 1.3 per cent gain in June. On a month-over-month basis, the core index was up 0.2 per cent in July, in line with economist expectations.
BMO senior economist Sal Guatieri noted that the core rate appeared to be on track to fall short of the Bank of Canada’s estimate of 1.9 per cent for the third quarter.
“While Canadian inflation has been more volatile than usual of late, core inflation looks to settle just below the two per cent inflation target, providing an anchor for the headline rate to gravitate toward,” Guatieri wrote in a note to clients.
“The tame core reading will buy the Bank of Canada time to remain on the sidelines, and is clearly no obstacle for rate cuts should global recession risks intensify.”
Energy prices were the main driver of the increase, gaining 12.9 per cent compared with a year ago. However, that was down from a 15.7 per cent increase for June. Gasoline prices were up 23.5 per cent compared with a year ago, compared with a 28.5 per cent increase in June.
Food prices were up 4.3 per cent, matching the increase in June.
Excluding food and energy prices the consumer price index increased at a pace of 1.2 per cent for July, compared with a 1.4 per cent increase for June.
July was the first month to compare prices with a year ago that included the introduction of the harmonized sales tax in Ontario and B.C. as well as a two percentage point increase in the tax in Nova Scotia.
