August 10, 2012 / 7:03 PM / in 5 years

Canada July inflation seen steady at 1.5 percent

OTTAWA (Reuters) - Canadian inflation is forecast to have remained tame in July, with the annual core rate coming in right on the Bank of Canada’s 2 percent target, and likely having little influence on its early September interest rate decision.

Analysts in a Reuters poll see the consumer price index rising 0.2 percent in the month for a mild 1.5 percent annual rate, unchanged from June.

The core rate, which excludes gasoline and seven other volatile items, is also seen holding steady from June as higher transportation costs offset discounts on some groceries that are included in the core measure.

The central bank, which markets believe will raise interest rates in 2013, assumes average year-over-year inflation of 1.7 percent in the second quarter and 2 percent core inflation, with both easing later in the year.

“With inflation remaining subdued and the downside risks to global economic growth and commodity prices threatening lower inflation, the need to remove any monetary policy stimulus has completely faded,” said David Madani, economist with Capital Economics, in a research note.

Bank of Canada Governor Mark Carney recently argued the case for higher rates again, saying if the economy continues to absorb excess slack, he may have to withdraw some stimulus.

But growth has been lackluster and nobody expects a move next month, let alone this year.

Primary dealers in a July 20 Reuters poll expected the bank to hold rates steady at 1.0 percent until the third quarter of next year. <CA/POLL>

Yields on overnight index swaps, which reflect expectations for the policy rate, showed traders see only a slight chance of a rate increase in December.

Editing by Jeffrey Hodgson

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