Inflation was more a fact of life in Canada last month than in recent months.
Figures released this morning by Statistics Canada revealed that the unadjusted all-items Canadian CPI index held steady in June, resulting in the annual inflation rate breaking higher to 1.2% after running below 1.0% in five of the previous seven months. On a seasonally-adjusted basis, consumer prices were up 0.3%.
The Bank of Canada's core measure posted a 0.2% dip in June on an unadjusted basis and was up 0.2% on a seasonally-adjusted basis. Relative to a year earlier, the Bank's core rate increased to 1.3% from 1.1% in May.
In June, rising prices for gasoline, furniture, fresh vegetables and air transportation were offset by lower clothing prices, a mild decline in passenger vehicle prices, and dairy products. Relative to a year earlier, gasoline prices rose 4.6%, clothing prices stood 1.0% higher and food prices were up 1.2%. In the 12 months to June, energy prices were up 4.1%, backed by the increase in gasoline and a persistent acceleration in natural gas prices which were 11.3% higher than in June 2012.
Moderating the impact of these price increases were lower mortgage interest costs (-3.8%), video equipment costs (-9.2%) and travel tours (-4.8%). The increase in motor vehicle prices relative to a year earlier was the main contributor to the 0.2 percentage points rise in the annual core inflation rate to 1.3%.
"Against this backdrop," according to experts at RBC Economics, "we expect the Bank's next move to be to raise the policy rate. However, given the lack inflation pressures and excess capacity in the economy, rate hikes are unlikely to occur in the near term.
"We look for the Bank, " RBC concludes, "to raise the overnight rate in the second half of 2014 when the economy is closer to full capacity and both the headline and core inflation rates are approaching the 2% target."
