Canada CPI Accelerates for Second Straight Month -- Update
By Paul Vieira
OTTAWA -- Canada's annual inflation rate accelerated in August to hit a four-month high, with gasoline and shelter costs lifting prices.
The all-items consumer-price index in August rose 1.4% from a year earlier, Statistics Canada said Friday, following a 1.2% advance in the previous month. The August rise was short of market expectations for a 1.5% advance, according to economists at Royal Bank of Canada.
On a month-over-month basis, CPI rose 0.1%.
Headline inflation remains below the Bank of Canada's preferred target of 2%. The central bank said in its most-recent decision, in which it raised the benchmark rate a quarter-percentage point to 1% on Sept. 6, that price pressures are evolving as expected, with the impact of temporary price shocks dissipating and stronger growth leading to the elimination of unused labor and production capacity.
Meanwhile, the average annual rate of core inflation, based on three gauges used by the Bank of Canada, rose to a six-month high in August. The three measures of core inflation, which aim to get a better read on underlying price pressures in the economy, ranged from 1.4% to 1.7%. Two of those measures accelerated from the previous month.
The CPI report, and signs that underlying inflation is gaining traction, "continue to lean in favor of tightening monetary policy" at the Bank of Canada, said Derek Holt, economist at Bank of Nova Scotia. Most market watchers believe there is likely one more rate increase this year coming from the Bank of Canada.
The Canadian dollar initially lost ground on the inflation data but then rallied. It remains slightly higher versus the U.S. dollar in midday trading Friday.
Central banks in the developed world are grappling on what to do with low inflation, even though data show growth has picked up across the board. Federal Reserve Chairwoman Janet Yellen said at a press conference this week that the central bank needs to determine whether the factors that have kept a lid on price pressures "are likely to prove persistent." The Fed left its policy rate unchanged and signaled another rate increase before the end of the year but indicated it would monitor developments on the inflation front.
A pickup in inflation can have positive effects on an economy. It might prompt consumers to buy goods and services before prices head even higher. Further, it provides flexibility to firms to offer wage increases to employees, thereby giving consumers more income to spend.
The main elements pushing the annual inflation rate upward were the price of gasoline, up 8.6%, and the homeowners' replacement cost, up 4.2%. The latter represents the price a homeowner has to pay to maintain a residence at its current market value. Food costs increased 0.9%.
Offsetting the price increases in August was a 8.9% one-year decline in the price of electricity. Electricity prices have declined on an annual basis in every month in 2017, largely on policy measures in Canada's most populous province, Ontario, to lower households' cost to keep the lights on.
Overall, the Canadian data agency said the cost of goods climbed 0.4% from a year ago, while prices for services -- such as haircuts, accounting and legal advice -- increased 2.2%.
On a seasonally adjusted basis, Canada's CPI rose 0.2% in August from the previous month.
Write to Paul Vieira at firstname.lastname@example.org
(END) Dow Jones Newswires
September 22, 2017 12:02 ET (16:02 GMT)Copyright (c) 2017 Dow Jones & Company, Inc.