Canada's inflation rate edges up, little rate pressure seen

Fri Aug 23, 2013 10:09am EDT
 
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By David Ljunggren

OTTAWA (Reuters) - Canada's annual inflation rate edged up to 1.3 percent in July from 1.2 percent in June, underlining how little pressure the Bank of Canada is under to increase rates, Statistics Canada data indicated on Friday.

Analysts had expected the rate to hit 1.4 percent. Although the July rate was the highest since the 1.3 percent recorded in July 2012, it was well below the Bank of Canada's 2.0 percent target.

The central bank, which has kept its key rate at a near-record low 1.0 percent since September 2010, said last month it would not hike rates as long as the inflation outlook remained muted and there was still significant slack in the economy.

"The big picture for Canadian inflation is that it is now gradually climbing from the depths of earlier this year, but it remains non-threatening — think Flipper, not Jaws," said Doug Porter, chief economist at BMO Capital Markets.

Porter said in a note to clients that a recent gradual decline in the value of the Canadian dollar would "add to the mild upward pressure in inflation, but a sluggish underlying growth profile for the economy and slow wage growth will restrain the upswing".

The Canadian unit briefly softened to a six-week low against the U.S. dollar on Friday, slipping to C$1.0569 to the U.S. currency, or 94.62 U.S. cents, after the data was released.

It later recovered some of its losses and by 9:45 a.m. EDT it was at C$1.0547. or 94.81 U.S. cents. This was still weaker than Thursday's finish at C$1.0516, or 95.09 U.S. cents.

The increase in July's inflation rate was led by transportation prices, which rose 2.7 percent on a year-over-year basis, compared with 2.0 percent in June.   Continued...

 
A Bay Street sign, a symbol of Canada's economic markets and where main financial institutions are located, is seen in Toronto, May 1, 2013. REUTERS/Mark Blinch