OTTAWA - Canada’s annual inflation rate in August slipped to 1.2% from 1.3% in July, indicating there is no real pressure on the Bank of Canada to start raising interest rates from near-record lows.
Statistics Canada said on Friday that despite the drop, there was virtually no difference between the two months. Analysts said the initial August figure was 1.24% and had therefore been rounded down to 1.2%, while July’s initial figure of 1.25% had been rounded up to 1.3%.
Market analysts had expected a 1.3% year-on-year increase in August.
“It just reinforces the message that inflation is just not a concern of the Bank of Canada at the moment, and likely will not be for some time, so the Bank of Canada can continue to hold interest rates,” said Sal Guatieri, senior economist at BMO Capital Markets.
The central bank, which targets a 2% inflation rate, started signaling in April it might raise rates if the economy continued to grow.
Overnight index swaps, which trade based on expectations for the central bank’s key policy rate, were mostly lower after the data as traders slightly decreased rate-hike bets.
The only major component to drop in the 12 months to August was clothing and footwear, where prices fell by 1.2% on declines in prices of women’s clothing. Energy prices rose 0.8% following three straight months of year-over-year falls.
The Bank of Canada’s closely watched core inflation rate, which strips out the prices of items such as gasoline, tobacco and some foodstuffs, dropped to 1.6% from 1.7% in July. Markets had expected the rate to fall to 1.5% .
Canada’s dollar stood at C$0.9753 against the U.S. dollar, or $1.0253 shortly after the data was released. It was trading around C$0.9746, or $1.0261 just before, and closed at C$0.9765, or $1.0241 on Thursday.