Canada Inflation Advances 1.3% in July on Gasoline

Canadian consumer prices advanced 1.3 percent in July from a year earlier on gains in gasoline and shelter, remaining below the central bank’s target for a 15th month.

Inflation quickened from June’s 1.2 percent pace, Statistics Canada said today from Ottawa, while lagging the 1.4 percent median forecast in a Bloomberg survey of 20 economists. The core rate, which excludes eight volatile products, advanced 1.4 percent after June’s 1.3 percent, also trailing forecasts for 1.5 percent inflation.

Bank of Canada Governor Stephen Poloz has said the world’s 11th largest economy is recovering gradually from a global recession, with spare production capacity and muted demand helping to hold down consumer prices. The central bank predicted in July that inflation will remain below its 2 percent target until mid-2015.

“It was pretty much in the wheelhouse for the Bank of Canada,” said Mark Chandler, head of fixed-income strategy at RBC Capital Markets in Toronto. “Broader trends still underscore a lack of price pressures.”

The Canadian dollar depreciated 0.2 percent to C$1.0534 per U.S. dollar at 10:15 a.m. in Toronto. It touched C$1.0568, the weakest intraday level since July 9. Government bonds rose, with the benchmark 10-year security yielding 2.73 percent after climbing yesterday to a two-year high of 2.78 percent.

Gasoline prices rose 6.1 percent in July from a year earlier, quickening from a June pace of 4.6 percent, Statistics Canada said. Shelter costs rose 1.3 percent while clothing and footwear advanced 1.5 percent.

Food Prices

Those gains were curbed by a 0.4 percent decline in health and personal care products, the fourth straight decline, and a 0.8 percent increase in food costs that was the slowest since June 2010.

“Top line growth is obviously a challenge in the current environment with no inflation in our basket, competitors adding square footage at a rapid pace, and consumers shopping around more than ever,” Eric La Fleche, chief executive officer of Montreal-based grocery chain Metro Inc., said on an Aug. 14 earnings call.

Other reports this week have shown declines in retail and wholesale sales. Economists forecast the second quarter ended with a contraction in economic output in June that will limit the quarterly growth rate to 1.6 percent.

On a monthly basis, inflation rose 0.1 percent in July and the core price index was unchanged.

Below Forecasts

Economists surveyed by Bloomberg predicted that overall monthly prices would rise 0.2 percent and the core rate would increase 0.1 percent.

Seasonally adjusted inflation rose 0.2 percent in July and the adjusted core rate advanced 0.1 percent.

“The big picture for Canadian inflation is that it is now gradually climbing from the depths of earlier this year, but it remains non-threatening,” said Doug Porter, chief economist at BMO Capital Markets in Toronto.

The 12-month inflation rate for July was the fastest in a year after it had moderated to 0.4 percent in April, which was the slowest since late 2009.

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