Items cost more in Canada last month, but the jump was not so much as the experts had predicted.
Statistics Canada said the unadjusted all-items Canadian Consumer Price Index index rose 0.2% in August following three consecutive monthly declines. Prices were 1.2% higher than in August 2011. On a seasonally adjusted basis, consumer prices rose a stronger 0.4%. The Bank of Canada's core measure posted a 0.3% gain on both an unadjusted and seasonally adjusted basis. The annual core inflation rate slipped to 1.6% in August, the slowest pace of increase in almost a year.
In the month of August, prices for gasoline, passenger vehicles, women's clothing, and electricity were higher than in July. These increases were partially offset by lower prices for fresh vegetables and fruit, children's clothing and air transportation. Overall clothing prices rose 0.4% in August, following three consecutive months of hefty declines and were 1.2% lower than a year earlier. Transportation costs, which account for 20.6% of the CPI, rose 0.9% in the month although were only 1.8% higher than in August 2011.
Auto prices stood 2.0% above where they were a year ago, slower than 3.0% average increase in the second quarter. Gasoline prices were 2.2% higher than in August 2011 on the back of a 2.7% gain in the month. Food prices, held steady in August and were 2.2% higher than a year earlier.
The core measure, which excludes the prices of the eight most volatile components of the CPI, was 1.6% higher than August 2011. Gains in auto prices and electricity costs supported the rise in the core rate. The 1.2% decline in clothing prices relative to a year earlier exerted downward pressure on the core rate.
The inflation backdrop remains benign with the low starting point for the third quarter likely to result in the slowest average increase since mid-2010. The Bank of Canada's measure of the core inflation rate has also trended lower though at 1.6% is closer to the Bank's 2% target. Growth indicators point to the economy expanding at a rate just shy of its potential in the third quarter in line with the pace of the prior three quarters. As the end of the second quarter, the economy was operating with a small amount of slack of about 0.5 ppt.
Employment gains have slowed in recent months and the unemployment rate stalled at 7.3% suggesting that labour market conditions, while firm, are not tightening significantly. We expect the pace of growth in Canada to accelerate in 2013 as uncertainties associated with the European and U.S. fiscal imbalances ebb and the global economy regains its momentum. Against this backdrop, the Bank will likely begin to scale back the amount of policy stimulus in order to ensure that domestic inflation pressures do not build.
Related Stories
