Canada's Inflation Drops in August

Canada's inflation was softer than expected in August, leading analysts to suggest that the Bank of Canada may hold interest rates steady in the coming months.

The inflation rate was 1.7 per cent in August on a year-over-year basis, Statistics Canada said, while month-over-month consumer prices slipped 0.1 per cent. The core rate, which strips out volatile-priced items such as food and energy, remained unchanged at 1.6 per cent in the month.

The figures indicate that inflation does not pose a threat to the economy, and consumer price increases are running below the central bank's forecast. For instance, analysts indicate that the core rate will come in lower than the bank's forecast for 1.8 per cent in the third quarter of 2010. This has analysts suggesting that the bank may refrain from raising its benchmark rate again at its next meeting, on Oct. 19.

In seasonally adjusted terms, core prices were flat in August, and the six-month trend has ebbed to a 0.3 per cent annualized rate -- the lowest pace in over 25 years of data, said Douglas Porter, deputy chief economist at BMO Capital Markets.

9/22/2010 11:59:26 AM