Canadian inflation climbed in June from a two-year low in May, but not enough to force the Bank of Canada to act any time soon on its hawkish warning that it would break ranks with its global peers and raise interest rates.
Statistics Canada said increases in the price of passenger vehicles, electricity, food, and homeowners’ replacement costs were mostly responsible for June’s slightly higher inflation rate, which was up three-tenths of a point from May.
Economists had actually projected an even greater uptick given May’s extremely low reading of 1.2%.
But they also cautioned that most of the increase would be temporary, caused by unusual base-effects from a year earlier when gas prices were receding and auto dealers launched an aggressive program of discounting.
The agency noted that discounting occurred this June as well — with car prices 2.7% lower than they were a month earlier — but less so than happened a year earlier.
As well, gasoline prices continued to trend downwards this June by 3.2% from May, but not as sharply as occurred last year at this time.
A truer picture of the inflation trend was reflected in the monthly measure, which saw the overall price of consumer goods and services Canadians regularly purchase fall by 0.4% from May.
Earlier in the week, the Bank of Canada said it expects overall headline inflation to remain below its 2% target for about a year.
The bank on Tuesday extended a two-year freeze on its benchmark lending rate, holding it steady at 1%, but repeating a hawkish warning that rate hikes "may become appropriate" as the economy gets closer to its full capacity.
The central bank’s other measure — core inflation, which excludes volatile items like energy and fresh vegetables and fruit — bore monitoring as it rose two-10ths to 2%, but still dead on the bank’s target line.
The key stand-out in Friday’s report was that the cost of electricity rose by 5.9% from last year, with most of the increases in Ontario, Alberta and British Columbia.
But the agency noted that even with this sharp increase, the energy component declined 0.8% in the 12 months, following a decrease in May.
In fact, for the second consecutive month, energy costs acted as a drag on annual inflation, which had not been the case since October 2009. Excluding that segment, the overall consumer price index would have risen to 1.7% in June, the agency said.
On an annual basis, food rose 2%, transportation costs by 1.7% and shelter costs increased 1.3%.
On a monthly basis, natural gas, fresh vegetables, financial services, electricity and hotel accommodation all cost more than in May. But cars, clothing, gas, non-alcoholic beverages and mortgage interest charges cost less.
Regionally, there were no price hot-spots as the inflation rate ranged from a high of 2.2% in Newfoundland and Labrador, to a low of 1.2% in Ontario.
