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Canada June Inflation Rate Quickens to 1.2% on Gasoline

Bank of Canada Governor Stephen Poloz said this week that inflation will remain below his 2 percent target until mid-2015 and stay
Bank of Canada Governor Stephen Poloz said this week that inflation will remain below his 2 percent target until mid-2015 and stay "subdued" over the next few months. Photographer: Galit Rodan/Bloomberg

July 19 (Bloomberg) -- Canada’s inflation rate quickened for a second month in June as the prices of gasoline and automobiles rebounded.

The consumer price index rose 1.2 percent from a year ago following a 0.7 percent gain in May. The core rate, which excludes eight volatile products, increased 1.3 percent after a 1.1 percent gain the prior month, Statistics Canada said today from Ottawa. Both figures matched median forecasts in Bloomberg economist surveys.

Bank of Canada Governor Stephen Poloz said this week that inflation will remain below his 2 percent target until mid-2015 and stay “subdued” over the next few months. The forces holding down inflation include “material slack” in the economy, small wage increases and stronger competition among retail companies, according to the central bank.

“It’s largely what the bank has baked into its forecast,” said Dawn Desjardins, assistant chief economist at Royal Bank of Canada in Toronto. Inflation “will be upward from here, I don’t think it’s going to go screaming higher,” said Desjardins, who predicts the central bank will keep lending rates unchanged until the second half of next year.

The Canadian dollar declined 0.1 percent to C$1.0386 per U.S. dollar at 9:34 a.m. in Toronto. One dollar buys 96.28 U.S. cents. Government yields declined, including the five-year security’s fall to 1.67 percent from 1.68 percent.

Food Prices

Gasoline prices rose 4.6 percent in June, following declines of 1.5 percent in May and 6 percent in April. The cost of passenger vehicles rose 2 percent, rebounding from a fall of 0.5 percent.

The pace of food inflation slowed to 1.2 percent in June from 1.3 percent the month before, according to the report, led by a 4.3 percent drop in sugar and confectionery items.

Grocery-store chain Sobeys Inc. said last month that its price increases were running at an annual pace of less than 1 percent.

“It’s very difficult to get the consumer to spend,” Marc Poulin, Sobeys Chief Executive Officer, said on a June 27 earnings call. “The competitive pressures are very present.”

More companies expect inflation to be in the bottom half of the central bank’s 1 percent to 3 percent target band, according to the central bank’s quarterly survey of business executives published on July 8. About 64 percent of respondents predicted inflation would be between 1 percent and 2 percent over the next two years, up from 61 percent in the last survey and the fifth straight increase.

On a monthly basis, the total consumer price index was unchanged in June and the core rate fell 0.2 percent, Statistics Canada said. Economists surveyed by Bloomberg predicted that total monthly prices would rise 0.1 percent and the core rate would fall 0.2 percent.

Seasonally adjusted inflation rose 0.3 percent in June from May and the adjusted core rate rose 0.2 percent.

To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net

To contact the editors responsible for this story: Chris Wellisz at cwellisz@bloomberg.net; David Scanlan at dscanlan@bloomberg.net

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