Canada’s inflation rate unchanged in August at 2.1 per cent: Statistics Canada

OTTAWA – Canada’s annual inflation rate held steady at 2.1 per cent in August, according to new Statistics Canada figures released Friday.

But many observers were caught off guard by an unexpected jump in another key indicator that helps the Bank of Canada decide if it should raise or lower interest rates.

Core inflation, the number the central bank closely monitors and which excludes some items from the volatile energy and food categories, was 2.1 per cent, after an increase of 1.7 per cent in July.

Economists had expected a gain of 1.8 per cent, according to Thomson Reuters.

The spike in core inflation had a lot to do with the higher cost of cigarettes and beer, according to Statistics Canada’s monthly consumer price index. It also cost more than it did a year ago for telephone and Internet services.

Diana Petramala of TD Economics said the jump in core inflation was a bit of surprise, but consistent with the recent pick up in the economy.

“Still, we are inclined not to get worked up over one-month of data. There is still evidence of a significant amount of slack in the Canadian economy,” she wrote in a note to investors.

The unemployment rate has held at around seven per cent for the past year, Petramala noted, and prices that are normally tied to economic conditions showed some signs of decelerating in August.

The central bank forecasts for inflation to be about two per cent for the next two and a half years, and for core underlying inflationary pressures to remain below the two per cent target until 2016.

The bank’s key interest rate has held at one per cent for four years, and the consensus among economists is that it’s not expected to edge upward until closer to mid-2015.

“The unexpected rise in the official core inflation rate, mainly due to recent price hikes in household communications, doesn’t appear to reflect any tightening in domestic economic conditions and therefore won’t change the Bank of Canada’s neutral interest rate outlook,” David Madani of Capital Economics wrote in an investors’ note.

Meanwhile, Statistics Canada says prices were higher in all 12 categories it looks at. As well, prices were up in every province, with Saskatchewan seeing the highest gain and Prince Edward Island the smallest.

On a seasonally adjusted basis, inflation was up 0.1 per cent in August compared with the previous month, when it fell by 0.1 per cent.

The latest read on inflation came as Statistics Canada also reported that wholesale sales fell 0.3 per cent to $52.9 billion in July.

Economists had expected a gain of 0.6 per cent, according to Thomson Reuters.

The drop came as five subsectors, which together represented 81 per cent of wholesale sales, slipped lower, more than offsetting an increase in the motor vehicle and parts subsector.

Wholesale sales declined 1.0 per cent when the motor vehicle and parts subsector was excluded.

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