Home Economy Canadian inflation holds steady in July, giving Bank of Canada one less reason to cut rates

Canadian inflation holds steady in July, giving Bank of Canada one less reason to cut rates

by Reuters

OTTAWA —  Inflation in Canada was firmer than expected last month, keeping underlying price pressure right at the central bank’s target and giving policy makers one less reason to consider immediate interest rate cuts.

The annual inflation rate held steady in July at 2.0 per cent because of lower costs for services, including telecoms, that were offset by higher prices for durable goods, Statistics Canada said on Wednesday. Analysts in a Reuters poll had forecasted an inflation rate of 1.7 per cent. Canada’s inflation rate in June was 2.0 per cent.

The Canadian dollar strengthened to $1.3265, or 75.39 cents U.S.

Canadian consumers paid less for telephone services in July following a industry-wide shift in how prices are set for cellular plans. At the same time, the price of smartphones and tablets rose 42.5 per cent month-over-month following a reduction in subsidies for wireless devices, Statistics Canada said.

Cellphone bills are expected to be a common issue for all three of Canada’s major political parties in the upcoming Oct. 21 federal election, where Prime Minister Justin Trudeau is facing tight competition from his opponent Conservative Party Leader Andrew Scheer.

The Bank of Canada is set to release its next interest rate decision on Sept. 4. The bank has held interest rates steady since October 2018 and is not expected to move for the rest of the year.

“The picture hasn’t changed a lot,” Nathan Janzen, a senior economist at Royal Bank of Canada, told Reuters.

“The economic data lately has been pretty strong and with inflation still running around 2 per cent it’s tough for (the Bank of Canada) to justify a move immediately as soon as their next meeting,” he said.

Andrew Kelvin, Chief Canada Strategist at TD Securities, agreed. “I don’t think this changes anything from the Bank of Canada’s perspective,” he said.

The Bank of Canada projected in its July update that inflation would dip to around 1.6 per cent in the third quarter because of fluctuating gasoline prices and other temporary factors before returning to around 2.0 per cent in the fourth quarter.

Statistics Canada said on Wednesday gasoline prices fell 6.9 per cent year-over-year in July, following a 9.2% decline in June, thanks to tighter supply in the United States because of a refinery closure.

Meanwhile, the price of fresh vegetables posted a double-digit increase for the 10th straight month, rising 18.9 per cent in July, while the price of air transportation rose 4.6 per cent.

CPI common, which the central bank says is the best gauge of the economy’s underperformance, rose slightly in July to 1.9 per cent — coming in above analyst projections of 1.8 per cent.

CPI median, which shows the median inflation rate across CPI components, and CPI trim, which excludes upside and downside outliers, were 2.1 per cent.

© Thomson Reuters 2019, with a file from Bloomberg

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