Canadian Inflation Slows to 1.9% on Lower Gasoline, Vegetable Prices

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(Bloomberg) -- Inflation in Canada decelerated in August after consumers paid less for gasoline and vegetable prices dropped.

Annual consumer price inflation slowed to 1.9% last month from 2% in July, Statistics Canada said Wednesday in Ottawa.
The number matched analyst expectations.

Canada’s CPI has grown at 1.9% or more on an annual basis for six consecutive months. The gains have coincided with robust labor market conditions.

Core inflation -- seen as a better gauge of underlying price pressure -- met the Bank of Canada’s target. The average of the three measures was 2%. Economists had forecast an average rate of 2.03%, which would have been unchanged from July.

Canadian Inflation Slows to 1.9% on Lower Gasoline, Vegetable Prices

Canada’s currency erased declines after the release, and was trading little changed at C$1.3254 against its U.S. counterpart at 8:36 a.m. in Toronto. Yields on 2-year government bonds fell 1 basis point to 1.61%.

Wednesday’s release “means the Bank of Canada can bide its time,” said Shaun Osborne, chief foreign exchange strategist at Scotiabank. He added there are many uncertainties, including trade and Saudi Arabia, “so inflation, especially core, holding around 2% suggests no pressure for the Bank of Canada to ease.'’

Key Insights

  • The slowdown in the annual inflation rate likely isn’t substantial enough to push Bank of Canada policy makers to consider a rate cut, despite the global easing trend of other central banks
  • Another argument for the central bank to stick to its current policy stance is that core inflation remained at the 2% target in August. The common rate was 1.8%, down slightly from 1.9% in July; the median rate was 2.1% and the trim rate was 2.1%, both unchanged from the previous month. The average of three measures was 2% in August, decelerating slightly from 2.03% in July
  • The market has priced in less than a 25% chance the Bank of Canada will cut rates by the end of the year. That contrasts with the U.S., where a rate cut by the Fed at its meeting Wednesday is fully priced in
  • A strong run of recent economic data has supported the central bank’s reasoning for keeping rates steady. There are some signs of weakness, however, particularly in the manufacturing sector, which could weigh on output

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  • Excluding gasoline, consumer prices accelerated 2.4%, matching July’s pace
  • Statistics Canada said gasoline prices are down 10.2% in the 12 months to August due to higher global production and soft international demand
  • Natural gas prices rose 5.8% in August on an annual basis, recovering from earlier this summer, when gas pipeline maintenance was ongoing and inventories were higher
  • Fresh vegetable prices fell 6.5%, posting the largest monthly decline in five years; Fresh fruit index dropped 1% annually

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