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Canada June Inflation Rate Slows to 1% on Lower Clothing, Gasoline Prices
Canada’s annual inflation rate slowed in June as gasoline prices fell for the first time since October 2009 while the costs of home upkeep and car insurance advanced.
The consumer price index rose 1 percent, the slowest in seven months, after a 1.4 percent gain in May, Statistics Canada said today. The core rate that excludes eight volatile items slowed to 1.7 percent from 1.8 percent. Economists forecast the inflation rate would be 1 percent and the core rate 1.9 percent, according to the median of 18 estimates in a Bloomberg News survey.
Overall and core inflation will advance at about a 2 percent pace through 2012 as the economy returns to full capacity after last year’s recession, Bank of Canada Governor Mark Carney said yesterday. The bank’s forecast anticipates a “gradual” rise in interest rates to keep inflation at that pace, Carney said.
“There is spare capacity still to be absorbed in the Canadian economy,” and that’s holding down inflation, said Jonathan Basile, a Credit Suisse economist in New York.
The Canadian dollar depreciated 0.2 percent to C$1.0393 per U.S. dollar at 7:48 a.m. in Toronto, compared with C$1.0371 yesterday. One dollar buys 96.22 U.S. cents.
Clothing Prices
Retail gasoline prices fell 2.9 percent in June from a year earlier, compared with a 6.9 percent increase the previous month, Statistics Canada said. Clothing and footwear prices fell 1.8 percent. Automobile insurance premiums rose 5.3 percent, and car prices rose 2.8 percent.
Homeowner replacement costs rose 5.2 percent in June, the report said. Food prices rose 0.7 percent from a year ago, the least since March 2008. Restaurant food rose 1.8 percent and food purchased at stores rose 0.1 percent.
The Bank of Canada said yesterday that “harmonized” sales taxes in Ontario and British Columbia that took effect July 1 will boost inflation by 0.6 percentage point from July to June 2011. The bank said this week that inflation would average 1.4 percent in the second quarter and 2.1 percent in the third quarter.
Loblaw Cos. Ltd., Canada’s biggest grocery chain, will focus on increasing sales volume because prices have been declining and it’s “difficult to predict when inflation will return to the market,” President Allan Leighton said on an earnings call yesterday.
Breakeven Rates
Investors are demanding less of a premium against the risk of rising consumer prices, with the so-called breakeven rate on 10-year bonds at 2 percent yesterday. The measure of what investors predict for consumer price inflation over that period fell to 1.85 basis points July 6, the lowest since at least July 2009 according to Bloomberg data.
The economy will return to full output at the end of next year, Carney said yesterday. The bank on July 20 raised its key rate for a second month to 0.75 percent, and trimmed its Canada growth forecast for this year to 3.5 percent from 3.7 percent. The economy will grow 2.9 percent in 2011 and 2.2 percent in 2012, the bank said.
On a monthly basis, both overall and core consumer prices fell 0.1 percent in June. Both those measures had advanced by 0.3 percent in the previous two months. Economists predicted that monthly prices would be little changed in June, and the core rate would be 0.1 percent.
To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net.
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