WRAPUP 3-Weak Canadian inflation revives talk of possible rate cut

Fri Sep 23, 2016 3:20pm EDT
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* Annual inflation rate at 1.1 percent in August

* Household debt data a signal consumers under strain

* Bank of Canada cut interest rates twice last year (Adds analysts' comment about fiscal stimulus)

By David Ljunggren and Fergal Smith

OTTAWA/TORONTO, Sept 23 (Reuters) - Canada's annual inflation rate in August dipped to a 10-month low and retail sales unexpectedly fell in July, disappointing markets and reviving talk that the Bank of Canada was more inclined to ease monetary policy than tighten.

The data, which reflect the impact of low prices for oil - a key Canadian export - underscore the increasing economic divergence with the United States. The Federal Reserve is expected to raise interest rates by the end of the year.

Statscan said on Friday that the annual inflation rate in August dropped to 1.1 percent, the seventh consecutive month it has stayed below the Bank of Canada's 2.0 percent target.

The closely-watched core rate, which strips out the price of some volatile items, fell to 1.8 percent from 2.1 percent, its lowest level for two years.

The Bank of Canada, which last year cut rates twice to counter the effect of low crude prices, said earlier this month that risks to the profile for inflation had tilted somewhat to the downside in recent months.   Continued...