Canada august inflation quickens to 3.1% On gasoline, food

Canada’s inflation rate accelerated more than economists forecast in August, with gains led by gasoline, insurance premiums and food.

The consumer price index increased 3.1 percent in August from a year earlier, compared with a July pace of 2.7 percent and a May peak of 3.7 percent, Statistics Canada said today in Ottawa. Economists surveyed by Bloomberg News predicted a 2.9 percent reading according to the median of 26 responses.

The core inflation rate, which excludes eight volatile items such as gasoline, quickened to a 1.9 percent pace, the fastest since April 2010, from July’s 1.6 percent. Economists expected the rate to be unchanged.

Inflation has been above the Bank of Canada’s 2 percent target for nine months, even after the economy shrank in the second quarter. Governor Mark Carney said in a speech yesterday that Canada’s recovery is hobbled by a weak U.S. economy and Europe’s debt crisis, and he may extend a period of low interest rates beyond when full production returns.

“It is still the external environment that’s the real concern,” said Mark Chandler, head of fixed-income strategy at Royal Bank of Canada’s Capital Markets unit in Toronto. Investors are still betting the central bank’s next move will be a rate cut, and it may take reports proving “a decent bounce back in growth for the third quarter” to change that, he said.

Dollar Down

The Canadian dollar depreciated 0.4 percent to 99.66 cents per U.S. dollar at 8:31 a.m. in Toronto, from 99.27 cents yesterday. The yield on the two-year Canadian government bond rose to 0.95 percent from 0.94 percent.

The yield on the three-month overnight index swap, a gauge of what investors predict the bank’s rate will average over that time, was unchanged at 0.96 percent today. The Bank of Canada’s key rate has been at 1 percent since last September.

Gasoline prices rose 22.8 percent in August from a year earlier, Statistics Canada said today. Insurance premiums rose by 7.5 percent on home and mortgage policies, and by 4.4 percent on automobiles. Food prices rose 4.4 percent.

The Bank of Canada forecast in a July 20 outlook that inflation would average 2.8 percent from July through September and 2.6 percent in the last three months of this year.

The central bank runs monetary policy with a goal of achieving a 2 percent annual inflation rate, the mid-point of a 1 percent to 3 percent target range.

On a monthly basis, overall consumer prices rose 0.3 percent in August from July. The core measure rose 0.4 percent. Economists surveyed by Bloomberg predicted monthly inflation of 0.1 percent and a core rate of 0.2 percent.

“Domestic demand in Canada remains fairly firm” Rudy Narvas, senior economist at Societe Generale SA in New York, said by telephone. “If things improve slightly and you see some improvement in Europe, the Bank of Canada could put its bias back toward tightening.”

--With assistance from Ilan Kolet in Ottawa. Editors: Carlos Torres, Paul Badertscher

To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1bloomberg.net

To contact the editors responsible for this story: David Scanlan at dscanlanbloomberg.net; Chris Wellisz at cwelliszbloomberg.net