Canada annual inflation eases in August to 1.1 percent

Fri Sep 20, 2013 9:26am EDT
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By Louise Egan

OTTAWA (Reuters) - Canada's annual inflation rate edged down in August to 1.1 percent from 1.3 percent in July, as expected, ensuring there is no pressure on the Bank of Canada to raise interest rates any time soon.

Higher shelter costs, particularly rent and natural gas, were the main driver of inflation in the 12-month period, Statistics Canada said on Friday.

The inflation rate last touched the Bank of Canada's 2 percent target in May 2012.

The bank has kept its benchmark interest rate on hold at 1.0 percent since September 2010 and says it will continue to do so as long as inflation is muted, the economy has significant slack and household debt continues to improve.

Mazen Issa, a macro strategist at TD Securities, said the August report held few surprises.

"In terms of the outlook for inflation we're looking for a very soft grind higher ... the implication from that is the Bank of Canada should have lots of breathing room to remain sidelined to nurture the broader economic recovery," he said.

In a speech on Wednesday, central bank chief Stephen Poloz said he expected the economy to be able to support stronger activity without stoking inflation because businesses are starting to invest in new capacity.

"Although Steve Poloz sees better times ahead, the tame inflation climate gives him the luxury of waiting a long time for that to unfold before even thinking about a rate hike," Avery Shenfeld of CIBC World Market Economics said in a note to clients.   Continued...

A woman carries shopping bags during the Christmas shopping season in Toronto, December 7, 2012. REUTERS/Mark Blinch