TORONTO (Reuters) - Canada’s annual inflation rate in August edged down to 1.9%, primarily due to lower gasoline prices, Statistics Canada said on Wednesday.
“The data was pretty much in line with expectations... For the most part, this is what you’d expect for an economy that’s operating pretty close to full employment and growing at a pretty modest rate.”
“The one area we’re seeing some upturn in the past year is food costs. It probably reflects the weak Canadian dollar.”
“For the Bank of Canada, it means that unless the economy faces a significant shock, there’s probably no imminent need to cut interest rates. It will all come down, most likely, to the outcome of U.S.-China trade talks. Assuming some deterioration on that front, quite possible the Bank of Canada would see the need to cut rates later this year.”
“I don’t think it changes much for the Bank of Canada. Obviously Canadian CPI has been on a tear over the last few months. But one of the big sources of surprise in this month’s report was that airfares were able to maintain all of their strength from July. We think when those come off over the next couple of months that should take a little heat out of things.”
“Two of the three core measures are still sitting above 2% so I think that is going to give the BoC added confidence that they can remain on the sidelines for a bit longer. We do still expect conditions to deteriorate into year-end which would prompt the BoC to cut rates early next year.”
“It looks pretty close to expected. Headline CPI inflation is still just under 2% the core measures on average, the Bank of Canada’s preferred core measures are averaging 2%, so that’s what the inflation picture’s looked like for a while in Canada. So it just looks like underlying trends are pretty firmly anchored around the Bank of Canada’s 2% target.”
“I don’t know that it changes anything, I think this is largely expected. What they’ve been more worried about than inflation pressures are external growth risks, so escalating U.S.-China trade tensions and slower global GDP growth. So in that respect even the U.S. economic data has become as important as Canada’s. We’ve also seen a little bit of strength there this morning with housing starts ticking higher in the U.S. Maybe some of the near-term economic growth numbers out of the U.S. are a little better, but I don’t think it’s enough at this point to change their (BoC) thinking on monetary policy.
Reporting by Fergal Smith, Moira Warburton and Nichola Saminather; Editing by Denny Thomas