Tame Canadian data shows little rate hike pressure

Fri Sep 21, 2012 11:21am EDT
 
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By David Ljunggren

OTTAWA (Reuters) - Tame Canadian inflation in August and weak wholesale sales data for July both show there is no real pressure on the Bank of Canada to start raising interest rates from near-record lows, analysts said on Friday.

Statistics Canada said the annual inflation rate had dropped to 1.2 percent in August from 1.3 percent in July, well below the central bank's 2.0 percent target rate. Markets had expected a rate of 1.3 percent.

Statscan said there was in fact virtually no difference between the two months. The more accurate August figure of 1.24 percent was rounded down to 1.2 percent, while July's 1.25 percent had been rounded up to 1.3 percent.

"It just reinforces the message that inflation is just not a concern of the Bank of Canada at the moment, and likely will not be for some time, so the Bank of Canada can continue to hold interest rates," said Sal Guatieri, senior economist at BMO Capital Markets.

The central bank started signaling in April it might raise rates if the economy continued to grow at a reasonable rate.

Whether it can do so is increasingly in question. In another report released on Friday, July's wholesale trade dropped by 0.6 percent from June, greater than the 0.2 decline expected by markets.

PRESSURE FROM ABROAD

The reports were the latest in a string of releases which showed the Canadian economy is slowing down, hurt by the persistent economic problems in Europe and the United States.   Continued...