"We don't expect enough inflationary pressures to be generated to pull the Bank of Canada off the sidelines until the end of 2014"
- Leslie Preston, Holt and Toronto-Dominion Bank economist
On Friday Statistics Canada published inflation data, saying consumer prices are approaching the bottom of the Bank of Canada target bank, due to lower costs for mortgage interest and prescription drugs. Figures showed the nation's CPO advanced 1.1% in August from a year earlier, following previous month's 1.3% gain, however, in line with analysts' projections. The core rate, which stripes out eight volatile products, decelerated to 1.3% from 1.4% recorded in July. The main downside pressure came from mortgage costs and health prices, which decreased 3.6% and 1.4% respectively. Moreover, Canadians paid 4.2% less for prescribed medication. Additionally, transportation costs slowed to 1.3% annually, less than half the pace posted a month earlier.
The nation has been struggling from weak inflationary pressure for over a year now, as prices remained below the 2% target level. Earlier in September Canadian policymakers refrained from any additional stimulus, leaving the overnight interest rate at 1%, and making no adjustments to its policy since September 2010. Moreover, the majority of economists do not expect the Bank of Canada to hike rates until late next year. While there are no signals of support from the government, intense competition in retail sector, low mortgage rates and weak growth in wages are conspiring to keep consumer prices very soft.
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