Higher Food Prices Hold Canada’s Inflation Rate at 1.3%

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Canadian consumer prices rose 1.3 percent in August, matching the fastest pace this year as higher costs for food, shelter and clothing offset cheaper gasoline.

Food costs as measured by the consumer price index rose 3.6 percent, including a 6.3 percent increase for meat, Statistics Canada said Friday in Ottawa. Gasoline prices fell 12.6 percent in August from a year earlier.

The core inflation rate, which excludes eight volatile products, slowed to 2.1 percent from July’s 2.4 percent reading that matched the fastest since 2008. Gains in the total and core consumer price indexes were in line with median estimates in a Bloomberg economist survey.

The Bank of Canada kept its key interest rate at 0.5 percent on Sept. 9 after cuts in January and July, and said inflation was in line with a forecast that it would stabilize around 2 percent in the first half of 2017. Today’s reading follows export and manufacturing data this month that exceeded forecasts, reinforcing the view policy makers are on hold through mid-2016.

“Now we are seeing this turn happening, we don’t need to step on the gas again,” said Dawn Desjardins, assistant chief economist at Royal Bank of Canada in Toronto. “With today’s inflation rate where it is, it kind of takes the pressure off.”

Shelter, Clothing

On a monthly basis, the index of consumer prices was unchanged in August, and core prices advanced 0.2 percent. Those results also matched economist forecasts.

Shelter prices rose 1.1 percent in August on an annual basis, and clothing and footwear climbed 2.1 percent.

The central bank sets interest rates to keep the 12-month inflation rate in the middle of a 1 percent to 3 percent band, and it uses core inflation as a guide to future trends.

Even with the moderation in core prices in August, the core measure has exceeded 2 percent for a year.

Core inflation has been boosted by “transitory effects” from the drop in Canada’s dollar and some “sector-specific factors,” the Bank of Canada said last week in its interest-rate decision. Those forces are offsetting spare capacity in the economy that’s holding down other prices, the bank said.

The central bank’s forecast is for inflation to average 1.2 percent from July to September, and for core to average 2.1 percent.

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