Canada June inflation stays tame, central bank seen on sidelines

Fri Jul 22, 2016 9:47am EDT
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By David Ljunggren

OTTAWA (Reuters) - Canada's annual inflation rate held at a relatively tame 1.5 percent in June, Statistics Canada said on Friday, which analysts said would reinforce the likelihood the Bank of Canada keeps interest rates on hold.

The central bank - which cut rates twice last year to counter the effect of low oil prices - has a 2.0 percent target for overall inflation, a level last seen in January this year.

"I would say the Bank is firmly on hold. They would need a shocking set of numbers to really get them off the sidelines and I wouldn't say this is shocking," said BMO Capital Markets Chief Economist Doug Porter.

A Reuters poll on July 7 found markets expected the bank to keep rates unchanged for at least another year. Its next scheduled rate announcement is on Sept 7.

Analysts polled by Reuters had expected the annual inflation rate to slip to 1.4 percent.

Separately, Statscan said Canadian retail sales rose by 0.2 percent in May from April to hit a record C$44.28 billion ($33.80 billion), largely because of increases for food, drink and gasoline.

The Canadian dollar strengthened after the reports, hitting C$1.3065 to the U.S. dollar, or 76.54 U.S. cents. It closed at 76.42 U.S. cents on Thursday.

The inflation data showed prices rose in all major components in the 12 months to June, with the shelter index posting a 1.6 percent gain and food prices rising by 1.3 percent.   Continued...

Products are displayed for sale inside a Target store in Delta, British Columbia January 15, 2015.  REUTERS/Ben Nelms