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Canada Inflation Rate

 

Not too hot, not too cold — Canada’s inflation rate is about where Bank of Canada governor Mark Carney would want it leading into his next big decision on interest rates.

 

Statistics Canada reported Tuesday that annualized inflation dipped four-tenths of a point to 1.4 per cent last month, and the central bank’s core index slipped one notch to 1.8 per cent, well below the bank’s preferred target of two per cent.

 

With temporary factors the only major contributors to above-target inflation, analysts said Carney may still go ahead with his second interest rate hike in two months on July 20, but it won’t be because inflation is keeping him up at a night.

 

A BMO economist noted, however, that the Canada’s central bank is still charging a very low rate for overnight loans — which are only available to a small number of very large financial institutions.

 

“It’s true this inflation rate is quite benign, but the bank’s overnight rate (0.5 per cent) is below the inflation rate. That’s quite rare,” noted Douglas Porter, deputy chief economist with BMO Capital Markets.

 

“There’s no urgency, but over time the trend will be to get those interest rates at least back to inflation if not a bit higher.”

 

The big unknown is how fast and how high. Porter sees the central bank pausing after another quarter-point hike to 0.75 per cent next month, while the TD Bank said Tuesday it believes Carney will bring the policy rate to 1.5 per cent by year’s end, “barring any financial market flareups.”

 

CIBC’s Krishen Rangasamy said May’s soft prices report again underlines the sizable economic slack still present in Canada, despite two consecutive quarters of 4.9 per cent and 6.1 per cent growth.

 

The Bank of Canada believes growth is moderating, however, and the economy won’t return to full capacity until sometime in the middle of next year.

 

Most of the inflation numbers point to a moderating trend.

 

On a month-to-month basis, Canadians paid 0.3 per cent more for goods last month than they did in April.

 

Excluding energy, the national inflation rate stood at a tepid one per cent.

 

Overall, six of the major components tracked by Statistics Canada recorded price increases, most moderate.

 

Transportation prices rose 4.1 per cent, largely due to gasoline, while shelter costs rose 1.3 per cent as a 4.4 per cent rise in the price of homes was offset by a 5.4 per cent decline in mortgage interest costs.

 

Food prices, a key element of the index, went up a tame 0.8 per cent, the smallest increase since March 2008.

 

The agency said gasoline prices were still 6.2 per cent higher than they were 12 months ago, but that is a huge drop from the 16.3 per cent difference that existed in April. On a monthly basis, gasoline was actually 0.5 per cent lower in May than in April.

 

The only major inflation bump in the future will come in the next few months when Ontario and British Columbia move to a harmonized sales tax, but because it is a one-time adjustment, the change won’t affect the central bank

Not too hot, not too cold — Canada’s inflation rate is about where Bank of Canada governor Mark Carney would want it leading into his next big decision on interest rates. Statistics Canada reported Tuesday that annualized inflation dipped four-tenths of a point to 1.4 per cent last month, and the central bank’s core index slipped one notch to 1.8 per cent, well below the bank’s preferred target of two per cent. With temporary factors the only major contributors to above-target inflation, analysts said Carney may still go ahead with his second interest rate hike in two months on July 20, but it won’t be because inflation is keeping him up at a night. A BMO economist noted, however, that the Canada’s central bank is still charging a very low rate for overnight loans — which are only available to a small number of very large financial institutions. “It’s true this inflation rate is quite benign, but the bank’s overnight rate (0.5 per cent) is below the inflation rate. That’s quite rare,” noted Douglas Porter, deputy chief economist with BMO Capital Markets. “There’s no urgency, but over time the trend will be to get those interest rates at least back to inflation if not a bit higher.” The big unknown is how fast and how high. Porter sees the central bank pausing after another quarter-point hike to 0.75 per cent next month, while the TD Bank said Tuesday it believes Carney will bring the policy rate to 1.5 per cent by year’s end, “barring any financial market flareups.” CIBC’s Krishen Rangasamy said May’s soft prices report again underlines the sizable economic slack still present in Canada, despite two consecutive quarters of 4.9 per cent and 6.1 per cent growth. The Bank of Canada believes growth is moderating, however, and the economy won’t return to full capacity until sometime in the middle of next year. Most of the inflation numbers point to a moderating trend. On a month-to-month basis, Canadians paid 0.3 per cent more for goods last month than they did in April. Excluding energy, the national inflation rate stood at a tepid one per cent. Overall, six of the major components tracked by Statistics Canada recorded price increases, most moderate. Transportation prices rose 4.1 per cent, largely due to gasoline, while shelter costs rose 1.3 per cent as a 4.4 per cent rise in the price of homes was offset by a 5.4 per cent decline in mortgage interest costs. Food prices, a key element of the index, went up a tame 0.8 per cent, the smallest increase since March 2008. The agency said gasoline prices were still 6.2 per cent higher than they were 12 months ago, but that is a huge drop from the 16.3 per cent difference that existed in April. On a monthly basis, gasoline was actually 0.5 per cent lower in May than in April. The only major inflation bump in the future will come in the next few months when Ontario and British Columbia move to a harmonized sales tax, but because it is a one-time adjustment, the change won’t affect the central bank

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