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.
Prices for most items rose at a slower annual pace in August than in July. Price growth accelerated only for food and for clothing and footwear, Statscan said.
The consumer price index was flat on a monthly basis. Analysts in a Reuters poll had forecast a 0.1 percent climb in the month and an annual rate of 1.1 percent.
Core CPI, closely watched by the Bank of Canada, rose 0.2 percent in August from July for an annual core rate of 1.3 percent, matching expectations.
Shelter costs jumped 1.1 percent in the year through August compared with 1.3 percent in July on increases in rent, natural gas and property taxes, while mortgage interest costs declined.
Transportation prices increased 1.3 percent versus 2.7 percent in July. Consumers paid 2.2 percent more for gasoline in August after seeing a 6.1 percent hike in July.
Additional reporting by Leah Schnurr and David Ljunggren; Editing by Chris Reese