Canada August Inflation Slows to 1.1% on Mortgages, Drugs

Canada’s inflation rate slowed for the first time in four months in August, approaching the bottom of the central bank’s target band, on lower costs for mortgage interest and prescription drugs.

The consumer price index rose 1.1 percent in August from a year ago, following July’s 1.3 percent pace, Statistics Canada said today from Ottawa. The core rate, which excludes eight volatile products, slowed to 1.3 percent from 1.4 percent.

Bank of Canada Governor Stephen Poloz, who sets policy to keep price gains in the middle of a 1 percent to 3 percent range, has said inflation will remain below 2 percent until mid-2015. The central bank’s key lending rate has been 1 percent for three years, the longest pause since the 1950s, and economists surveyed by Bloomberg predict Poloz won’t raise borrowing costs until the second half of 2014.

“I don’t see the case to be really worried about inflation and that backs a dovish Bank of Canada for a long time,” Derek Holt, vice president and economist at Scotiabank in Toronto, said in a telephone interview.

The Canadian dollar fell 0.2 percent to C$1.0290 per U.S. dollar at 9:36 a.m. in Toronto. One dollar buys 97.18 U.S. cents. Government bond yields declined with two-year yields falling 2 basis points to 1.23 percent and five year notes by 1 basis point to 2.01 percent.

The slower year-over-year total and core inflation rates matched the median estimates in Bloomberg economist surveys.

Mortgage interest costs fell 3.6 percent in August from a year earlier while prescribed medicines declined 4.2 percent, according to the report. Major price increases included a 9.5 percent jump in natural gas and a 1.7 percent rise in rental costs.

Cheaper Phones

On a monthly basis, consumer prices were unchanged in August as clothing costs rose 1.9 percent and telephone services declined 1.7 percent. The core rate climbed 0.2 percent in August from July. Economists surveyed by Bloomberg predicted that monthly prices would rise 0.1 percent and the core rate would increase 0.2 percent.

BCE Inc.’s Bell Canada unit lowered its U.S. roaming fees on mobile devices by 50 percent in response to customer requests, the Montreal-based company said Sept. 16.

Seasonally adjusted inflation rose 0.1 percent in August and adjusted core prices were unchanged, Statistics Canada said today.

Increased retailer competition is helping restrain inflation, said Holt and Toronto-Dominion Bank economist Leslie Preston. Wal-Mart Stores Inc. is expanding the number of stores that carry fresh food in Canada this year while Target Corp. is expanding in the country.

“We don’t expect enough inflationary pressures to be generated to pull the Bank of Canada off the sidelines until the end of 2014,” Preston wrote in a research note. “Intense competition in retailing, a persistent decline in mortgage interest costs and very little upward pressure from wages are conspiring to keep inflation in Canada very soft.”