(Recasts lead, updates throughout with much much more detail, commentary fromeconomists.)
–Core inflation rises at fastest pace considering that April 2010
–Report lowers odds of rate cuts
–Economists say BOC most likely to stay on sidelines indefinitely
August Inflation Report
=--------------------------------------------------------==Key Numbers ! ! Aug. July !Consensus: !Core Inflation y/y +1.9% +1.6% !Core: +1.6% y/y !Core Inflation m/m +0.4% +0.2% !headline: +2.9% !All-items CPI y/y +3.1% +2.7% ! !All-items CPI m/m +0.3% +0.2% !Actual: ! !core: +1.9% ! !headline: +3.1% !=--------------------------------------------------------==
By Nirmala Menon
Of Dow Jones Newswires
OTTAWA (Dow Jones)–Canadian inflation heated up in August, reducing the oddsof a rate cut, but the central bank won’t rush to hike rates either given theheadwinds from a slowing U.S. economy along using the euro-zone debt crisis.
The core consumer expense index accelerated unexpectedly as the expense ofpassenger vehicle insurance premiums, food purchased from restaurants and bakeryand cereal products increased. The headline rate rose faster than expected asconsumers paid far far more for gasoline and food purchased at stores.
Core CPI rose 0.4% on a monthly basis, double the pace in July, lifting theyear-on-year rate to 1.9% – the fastest given that April 2010 – from 1.6%, StatisticsCanada said Wednesday. The monthly headline or all-items CPI sped up to 0.3%from 0.2% and also the annual rate accelerated to three.1% from 2.7%.
The consensus call was for core CPI to grow 0.2% on a monthly basis and 1.6%year-on-year. The headline rate had been expected to climb 0.1% month-on-monthand increase 2.9% from a year ago.
Monthly core inflation on a seasonally adjusted basis was up 0.3%, the same asin July, while the headline rate accelerated to 0.3% from 0.1%.
The Canadian dollar strengthened after the data were published, employing the U.S.dollar falling to C$0.9947 from C$0.9957 just before the release.
The pickup in inflation comes even as the Bank of Canada said earlier thismonth that the need for rate hikes had “diminished.” Governor Mark Carney saidin a speech in Saint John, N.B. Tuesday that the “considerable” externalheadwinds facing the economy are blowing harder at the same time as the Bank would be “prudentwith respect to the possible withdrawal of any degree of monetary stimulus.” Hesaid the Bank takes a “flexible” approach and that the policy rate can return tothe so-called neutral rate after inflation reaches the 2% target and economicoutput reaches its potential.
“If there was any chance they had been going to cut rates, it (stronger inflationfigures) probably means they are not going to do that,” BMO Capital Marketseconomist Robert Kavcic said in an interview.
David Tulk, chief Canada macro strategist at TD Securities said the data “speaks a little bit to a world that we no longer exist in” as it reflectsearlier conditions when the economy was growing and spare capacity was beingabsorbed quickly. The global deceleration will catch up to Canada and theresulting “slow grinding recovery” means core inflation will cool, Tulk said inan interview.
He said the Bank has the capacity to cut rates, but would most likely prefer tostay on hold longer to provide an “insurance policy” for the broader economy. Ifstimulus is required, it really is going to probably be via fiscal policy, he added.
Although gasoline costs fell 0.8% from July, the cost was 22.8% much a lot more than inAugust 2010, StatsCan said. The price of fuel oil and electricity also rose.
Food costs increased four.4% year-on-year as costs of bakery and cerealproducts, meat, dairy products, eggs, fresh fruit and vegetables all increased.Consumers paid 5% a lot a lot more for food purchased from stores and 2.7% a lot much more for foodfrom restaurants.
Website: http://www.statcan.gc.ca
-By Nirmala Menon, Dow Jones Newswires; 613-237-0668; nirmala.menon@dowjones.com
(Finish) Dow Jones Newswires 09-21-110906ET Copyright (c) 2011 Dow Jones & Company, Inc.
