Canada inflation rate picks up in July as food prices rise

Fri Aug 21, 2015 10:39am EDT
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By Leah Schnurr

OTTAWA (Reuters) - Canada's annual inflation rate rose to its highest level in seven months in July as higher prices for food and clothing offset the moderating effect of cheaper energy.

A separate report on Friday showed retail sales rose more than expected in June, though flat volumes dulled the enthusiasm of analysts looking for signs the economy is pulling out of its slump.

Economists said the reports had few implications for monetary policy, with the Bank of Canada looking through temporary inflation factors. The central bank, whose next policy decision is in September, has cut interest rates twice this year to spur the economy, which was likely in recession in the first half of 2015.

"From a GDP standpoint, it really isn't that positive of a development," Andrew Kelvin, senior fixed-income strategist at TD Securities, said of the reports.

"It's still a little early to say what we think what's going to happen with Q3 until we see the trade data," he said. While recent trade data was strong, economists are uncertain whether that will be sustained.

Annual inflation rose to 1.3 percent in July, Statistics Canada said, shy of economists' expectations for 1.4 percent, and the highest level since December.

Core inflation, which strips out volatile items and is closely watched by the bank, rose to 2.4 percent, as forecast. The bank estimates the underlying inflation trend at about 1.5 percent to 1.7 percent.

"What stands out here is Canada does have one of the higher headline inflation rates in the industrialized world," said Doug Porter, chief economist at BMO Capital Markets. "A lot of that is due to the impact of the weakening Canadian dollar."   Continued...

Prices are displayed for oranges at a store in Atawapiskat, Ontario, in this December 17, 2011 file photo. REUTERS/Frank Gunn/Pool