Canada Inflation Rises


Canada's annual inflation rate rose to the highest since March 2003 in August as prices for gasoline and food surged.

Consumer prices rose 3.5 percent from August 2007, Statistics Canada said today in Ottawa. Prices fell 0.2 percent from July.

The Bank of Canada this month signaled that borrowing costs would stay put for the foreseeable future. Still, economists such as David Wolf of Merrill Lynch and Co. say policy makers may need to cut interest rates sooner than expected to kick start growth as a financial market crisis crimps the U.S. economy. At the same time, the central bank projects inflation will continue to accelerate before peaking next year.

Excluding gasoline and seven other volatile items, inflation rose 1.7 percent in August from a year earlier and 0.3 percent from July.

Prices for gasoline were up 26 percent between August 2007 and August 2008, while natural-gas costs for consumers rose 32 percent over that period, the statistics agency said.

Food prices in stores rose 5.2 percent, led by a 15 percent jump for bakery and cereal products, the biggest gain since September 1981. The price index for shelter increased 5.3 percent over the 12-month period, the agency said.

Labor and housing markets in Canada have softened in recent months, prompting some economists such as Merrill's Wolf to say the bank will cut the benchmark rate from 3 percent to 2.75 percent at its Oct. 21 meeting. Policy makers may ease by the end of the fourth quarter, according to the weighted average of 11 economists surveyed by Bloomberg.

The central bank said in July the economy will grow just 1 percent this year, the slowest since 1992 when Canada had its last recession. Policy makers also forecast inflation would accelerate to 4.3 percent in 2009, before softening that call this month as energy prices slowed.

Gasoline pump prices fell 6.6 percent in August, the agency said. They rose to a record C$1.40 per liter last week though, according to data compiled by Bloomberg.

Falling prices for automobiles helped keep annual inflation from accelerating further in August, the statistics agency said. The costs of buying or leasing a vehicle fell 7.3 percent from August 2007, the 14th straight decline.


TradingEconomics.com, Bloomberg.com
9/23/2008 5:23:31 AM