OTTAWA – Canada's annual inflation rate picked up steam in July after slowing to a near two-year low in the previous month, as it cost more to purchase gasoline and maintain a residence.
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Pricing pressure remains tepid in Canada, although July's report marks a possible turning point because it was the first time in six months annual inflation accelerated from the previous month.
The all-items consumer-price index in July rose 1.2% from a year earlier, Statistics Canada said Friday, following a 1% advance in the previous month. July's advance matched market expectations, according to economists at Royal Bank of Canada.
On a month-over-month basis, CPI was unchanged in July.
Meanwhile, the average annual rate of core inflation, based on three gauges used by the Bank of Canada, rose 1.5% in July, versus a 1.4% gain in the previous month. The three measures of core inflation -- which aim to get a better read on underlying price pressures in the economy -- ranged from 1.3% to 1.7%. Two of those measures accelerated from the previous month.
The Bank of Canada sets rate policy to achieve and maintain 2% inflation.
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A pickup in inflation can have positive effects on an economy. It might prompt consumers to buy goods and services before prices head even higher. Further, it provides flexibility to firms to offer wage increases to employees, thereby giving consumers more income to spend.
Central banks in the developed world are grappling with relatively weak inflation, even though growth has improved. Sagging inflation in the U.S. has triggered concerns among some senior Federal Reserve officials about the timing of the next increase in interest rates. According to minutes from the Fed's July 25-26 meeting, some officials argued against another rate rise until data suggested inflation was on a clearer path toward 2%.
"Canadian inflation may still be modest, but is showing some signs of moving in the right direction vis-à-vis the Bank of Canada's inflation target," said Brian DePratto, economist at TD Bank. "One month is hardly a trend, but the modest increases in the Bank of Canada's core measures provides some hope that inflation may have turned a corner."
Canada's central bank raised its benchmark interest rate last month by a quarter-percentage point, to 0.75%, on improving economic prospects, and signaled other increases could be in the offing. The economy is close to hitting full capacity, the central bank said, and that should lead to upward pricing pressure as more people find work and have more money to spend on goods and services.
Before the CPI release, economists noted July tends to be a soft month for inflation, with clothing and health and personal care falling on average over the past five years. The data agency said clothing and footwear prices fell 0.1% in July from a year ago, while health and personal-care products rose 2.2% during the same period.
The main elements pushing the annual inflation rate upward were the price of gasoline, up 4.6%, and the homeowners' replacement cost, up 4.1%. The latter represents the price a homeowner has to pay to maintain a residence at its current market value.
Meanwhile, food costs rose 0.6%, although mostly due to higher prices charged by restaurants. Offsetting the price rises was a 9.1% decline in the cost of electricity, mostly due to measures from the government of Ontario, Canada's most populous province, to reduce homeowners' utility bills.
Overall, the Canadian data agency said the cost of goods edged upward 0.1% in July from a year ago, while prices for services -- such as haircuts, accounting and legal advice -- rose 2.1%.
On a seasonally adjusted basis, Canada's CPI rose 0.2% in July from the previous month.
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(END) Dow Jones Newswires
August 18, 2017 09:55 ET (13:55 GMT)