October 24, 2008 / 11:24 AM / 9 years ago

Inflation begins to ease in September

OTTAWA (Reuters) - Canada’s annual inflation rate began to descend from a five-year high in September, as prices fell for cars, clothing and computers, Statistics Canada said on Friday.

<p>Canadian one dollar coins are displayed in Montreal, September 19, 2007. REUTERS/Christinne Muschi</p>

The consumer price index was 3.4 percent higher in September from a year earlier, in line with forecasts and down from a rate of 3.5 percent in the previous month. On a monthly basis, CPI advanced 0.1 percent.

Core inflation, which strips out volatile items like gasoline and is considered the most reliable gauge of underlying price trends, was unchanged at 1.7 percent on the year but gained 0.4 percent in the month.

“It’s a bit of a holding pattern for inflation,” said Eric Lascelles, chief economics and rates strategist for TD Securities.

The inflation data is expected to have little influence on the Bank of Canada, which now sees inflation dropping below 1 percent next year as commodity prices tumble and the global economy slows sharply.

“I think what we are going to see in the next couple months is headline inflation recede rapidly because this really captures the last of the strength in gasoline prices and we know that gasoline prices have tumbled more than 15 percent since September,” said Doug Porter, deputy chief economist at BMO Capital Markets.

After falling sharply in July and August, oil prices paused in September, gaining 0.9 percent on the month, before resuming their freefall. Even so, gasoline continued to be the main factor contributing to the annual inflation rate, with prices up 26.5 percent compared with September 2007.


“I think realistically inflation is the least of policy-makers’ concerns at this point,” said Porter.

The central bank cut its key interest rate on Tuesday to 2.25 percent and suggested it would cut further, primarily concerned about the stagnating economy and fallout from the global financial meltdown ahead of its next rate decision on December 9.

The Bank of Canada has cut its overnight lending rate by 225 basis points since December 2007.

The Canadian dollar moved to C$1.2750 to the U.S. dollar, or 78.43 U.S. cents, after the inflation report from pre-data level around C$1.2722 or 78.63 U.S. cents. Bonds remained mostly flat across the curve.

Of the eight major categories in the CPI, Statscan said shelter costs were the main upward contributor to the index on an annual basis, rising 4.5 percent because of higher costs for mortgage interest, natural gas, fuel oil and other fuels.

Food, which has less weight in the index than transportation, nonetheless contributed more to the upward move with a 5.6 percent increase.

Transportation costs rose 4.7 percent, buoyed by a year-on-year rise in gasoline prices which was partially offset by lower prices for passenger vehicles.

In the month, tuition fees and clothing pushed the CPI higher while natural gas, air transportation and vehicle purchases and leasing held it back.

Additional reporting by Frank Pingue and John McCrank; Editing by James Dalgleish

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