By David Ljunggren
OTTAWA Aug 23 Canada's annual inflation rate
edged up to 1.3 percent in July from 1.2 percent in June,
underlining how little pressure the Bank of Canada is under to
increase rates, Statistics Canada data indicated on Friday.
Analysts had expected the rate to hit 1.4 percent. Although
the July rate was the highest since the 1.3 percent recorded in
July 2012, it was well below the Bank of Canada's 2.0 percent
The central bank, which has kept its key rate at a
near-record low 1.0 percent since September 2010, said last
month it would not hike rates as long as the inflation outlook
remained muted and there was still significant slack in the
"The big picture for Canadian inflation is that it is now
gradually climbing from the depths of earlier this year, but it
remains non-threatening - think Flipper, not Jaws," said Doug
Porter, chief economist at BMO Capital Markets.
Porter said in a note to clients that a recent gradual
decline in the value of the Canadian dollar would "add to the
mild upward pressure in inflation, but a sluggish underlying
growth profile for the economy and slow wage growth will
restrain the upswing".
The Canadian unit briefly softened to a six-week low against
the U.S. dollar on Friday, slipping to C$1.0569 to the U.S.
currency, or 94.62 U.S. cents, after the data was released.
It later recovered some of its losses and by 9:45 a.m. (1345
GMT) it was at C$1.0547. or 94.81 U.S. cents. This was still
weaker than Thursday's finish at C$1.0516, or 95.09 U.S. cents.
The increase in July's inflation rate was led by
transportation prices, which rose 2.7 percent on a
year-over-year basis, compared with 2.0 percent in June.
Gasoline prices advanced by 6.1 percent in the 12 months to
July, compared with 4.6 percent in June.
The closely watched core inflation rate, which excludes
prices for gasoline, some foods and other volatile items, rose
to 1.4 percent in July from 1.3 percent in June.
A Reuters poll on July 10 showed economists do not expect
the Bank of Canada to raise rates until the fourth quarter of
"While the upward drift argues that the Bank of Canada's
next move will still likely be to raise rather than lower rates,
the overall muted inflation backdrop provides little pressure to
make a change in the near-term," Nathan Janzen of RBC Economics
said in a note to clients.
Food prices rose just 0.8 percent in the 12 months to July,
the smallest year-on-year increase since June 2010.
Shelter costs rose 1.3 percent, while the health and
personal care component fell 0.4 percent, the fourth consecutive
monthly drop after a decade of price increases, thanks to
falling prices for prescribed medicines.
Total inflation increased 0.1 percent in July from June.