UPDATE 2-Canada June inflation rises to 1.2 pct, still tame

Fri Jul 19, 2013 9:44am EDT

* Annual inflation rises from 0.7 pct in May as expected
    * Core rate hits 1.3 pct vs 1.1 pct in May
    * Gasoline, vehicles, shelter main contributors to rise
    * Analysts see no change in Bank of Canada stance

    By Louise Egan
    OTTAWA, July 19 (Reuters) - Canada's annual inflation rate
rose in June for the second straight month to 1.2 percent after
hitting a 3-1/2-year low in April, but price pressures remained
muted as the central bank signaled an extended pause on interest
rates.
    The consumer price index (CPI) was unchanged in the month,
Statistics Canada said on Friday, but the year-on-year rise in
transportation, shelter and food pushed up annual inflation from
0.7 percent in May. Inflation bottomed out in April at 0.4
percent.
    Core CPI, which excludes gasoline and some other volatile
items, fell 0.2 percent in the month but quickened to a 1.3
percent annual rate compared with 1.1 percent the previous
month.
    Both annual rates came in exactly as forecast, although on a
monthly basis analysts in a Reuters poll had expected a 0.1
percent rise in total CPI and a 0.1 percent drop in core CPI.
    "Inflationary pressures are really absent, there's really no
inflation to talk about," said Carlos Leitao, chief economist at
Laurentian Bank of Canada in Montreal.
    Leitao said the data would not change the Bank of Canada's
accommodative stance on monetary policy. "If anything it will
confirm to them that their current stance is appropriate."
    The Canadian dollar slipped after the data to a
session low of C$1.0390 to the U.S. dollar, or 96.25 U.S. cents,
marginally softer than just before the news and weaker than
Thursday's close at C$1.0376, or 96.38 U.S. cents. 
    With inflation at the lower end of the Bank of Canada's
target range of 1-3 percent, the central bank is unlikely to
follow through any time soon on its pledge of eventual interest
rate hikes. 
    The bank said on Wednesday it would keep its benchmark
lending rate unchanged at 1 percent as long as "the inflation
outlook remains muted," the economy has significant slack and
household debt stays under control. 
    
  
 
    The bank sees total CPI inflation of 0.7 percent and core
inflation of 1.1 percent in the second quarter, according to its
quarterly estimates released on Wednesday. Both measures will
rise to 2 percent by mid-2015, it said.
    In the 12 months to June, transportation costs accelerated
as gasoline prices jumped 4.6 percent and car prices rose 2
percent, Statscan said. Both items had fallen in May.
    Prices rose in six of the eight major components of the CPI
in the year, with declines in health and personal care as well
as in recreation, education and reading.
    After his first rate decision this week, new Bank of Canada
Governor Stephen Poloz maintained the message delivered by his
predecessor Mark Carney that the bank's next move on rates would
be a hike, not a cut. But he made clear no such move is
imminent. 
    Market players don't expect rates to rise until the fourth
quarter of 2014.
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.