Inflation edges up 1.3 per cent: Gas higher, but food prices in check

Canada annual inflation rate rose by one-tenth of a point to 1.3 per cent in July

OTTAWA – Canada annual inflation rate rose by one-tenth of a point to 1.3 per cent in July, almost all due to an increase in the price of gasoline, but still remained tame and below expectations.

The modest gain in July, following sizable jumps of 0.3 and 0.5 per cent the previous two months, was about half what economists had expected and kept country’s inflation well below the Bank of Canada’s desired target of two per cent.

The little increase there was attributed mostly to a 6.1 per cent jump in gasoline prices, which helped pushed the overall cost of transportation higher.

But food prices, another major component in the inflation calculation, were only 0.8 per cent higher on average in July than they were a year earlier, the smallest gain since June 2010.

Food purchases at stores rose even less, by 0.5 per cent, as the cost of fresh fruit, fresh vegetables and meat all increases less last month than in June.

And overall, there seemed to be little evidence of outsized price fluctuations. Shelter costs rose a tame 1.3 per cent, rent by 1.7, passenger vehicle prices increased by two per cent, and property taxes by 2.8 per cent. There was a big jump in the price of natural gas, at 12.3 per cent, however.

But many consumer goods and services registered outright declines. Mortgage costs fell 3.8 per cent, video equipment dropped nine per cent, personal care supplies and equipment slumped 2.8 per cent, medicines were 4.4 per cent lower than a year ago and travel tours 4.8 per cent lower.

Core inflation, the best indicator of structural, underlying price pressures, stayed well anchored at 1.4 per cent, one-tenth of a point higher than in June. On a month-to-month basis, prices were only one-tenth of a point higher in July than they had been in June.

The report held few surprises for markets and the Bank of Canada, which have long concluded that as long as the Canadian and global economies continue to struggle, interest rates remain low, demand stays tame and unemployment relatively high, there would be few pressure points in the system to sustain a run-up in consumer prices.

The Bank of Canada has forecast that inflation won’t return to two per cent until sometime in 2015.

Regionally in July, Manitoba recorded the highest rate of inflation at three per cent, in part due to a one point increase in the provincial sales tax. The lowest rate in inflation came in British Columbia, where prices were unchanged in July from the same month last year.