October 23, 2015 / 12:35 PM / in 2 years

Canada's annual inflation rate dips to 1.0 percent on cheaper gas

OTTAWA (Reuters) - Canada’s annual inflation rate dipped to 1.0 percent in September on lower prices for gasoline, marking the 10th straight month it has been below the Bank of Canada’s 2.0 percent target, Statistics Canada said on Friday.

Cars pull into an Esso gas station in Richmond Hill, Ontario, January 30, 2015. REUTERS/Mark Blinch

A Reuters poll of analysts had predicted the annual rate would be 1.1 percent in September, following August’s 1.3 percent rate.

Inflation has been anemic since late last year, when slumping prices for energy started to hit the Canadian economy.

Gasoline prices fell by 18.8 percent in the 12 months to September compared with a 12.6 percent decrease in August. The drop overwhelmed the rest of the index, even though seven out eight components posted an increase from September 2014.

Core inflation, which strips out volatile items and is closely watched by the Bank of Canada, advanced by 2.1 percent, the same as in August.

The Bank of Canada on Wednesday said what it calls the underlying inflation rate continued to be around 1.5 to 1.7 percent. It said total inflation would return to the 2.0 percent target in the first quarter of 2017.

Scotiabank economist Derek Holt predicted “the forces weighing against headline inflation will prove transitory”, in particular citing the decline in gas prices.

“I think they (the Bank of Canada) are much closer to achieving their inflation goals than they let on,” he said in a phone interview.

The Canadian dollar weakened to C$1.3110 to the U.S. dollar, or 76.28 U.S. cents, after the data was released. It had opened at C$1.3088, or 76.41 U.S cents.

In the inflation data, the transportation index, which includes prices for gas, dropped by 3.5 percent in September, the 11th consecutive decline.

Once energy prices were stripped out, the annual inflation rate was 1.8 percent. Food prices advanced 3.5 percent year-on-year while shelter prices grew by 1.1 percent.

Plummeting energy prices have also dragged the Canadian dollar down to near-decade lows in recent months, which in theory means prices for imported goods should increase and boost inflation.

“Realistically, the inflation numbers don’t mean all that much for the Bank anymore, they’re more focused on underlying inflation,” said Benjamin Reitzes, senior economist at BMO Capital Markets.

Reporting by David Ljunggren; Editing by Bernadette Baum and W Simon

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