Canadian inflation falls to 1.9% in August on lower gas prices

Reuters

Published Sep 18, 2019 10:03AM ET

Canadian inflation falls to 1.9% in August on lower gas prices

By Kelsey Johnson

OTTAWA (Reuters) - Canada's annual inflation rate fell slightly to 1.9% in August on lower gasoline prices, Statistics Canada said on Wednesday in its first major data release since Canadian politicians formally hit the campaign trail.

Analysts in a Reuters poll had forecast an inflation rate of 2.0%. Canada's annual inflation rate in July was 2.0%. After the data release, the Canadian dollar held steady near C$1.3250, or 75.47 U.S. cents.

Canada is in the midst of a national election with polls showing the governing Liberals are in a tight bid for reelection against the opposition Conservatives, who have focused their campaign on issues related to the cost of living and affordability. Canadians vote on Oct. 21.

Consumer prices for gasoline, Statistics Canada said, fell 10.2% in the 12 months to August following a 6.9% decline in July. Global oil prices also declined slightly in August, due to higher production and softer international demand.

Meanwhile, the price of fresh vegetables dropped 6.5% in August from July - the largest month-over-month decline seen in five years - as temporary pressures because of inclement weather in agricultural regions eased.

Fresh and frozen pork were also cheaper, dropping 2.7% from July due to trade restrictions on Canadian pork exports. Despite the weaker pork prices, Statscan said the overall year-over-year cost for meat rose 4.8% in August.

Earlier this month, the Bank of Canada held interest rates steady and made no mention of future cuts. The central bank, which has sat on the sidelines since last October, has said Canada's economy is showing a "welcome degree of resilience" to negative shocks.

"For the Bank of Canada, it means that unless the economy faces a significant shock, there's probably no imminent need to cut interest rates," said Sal Guatieri, a senior economist for BMO Capital Markets.

Canadian airfare soared 10.3% year-over-year in August after a 4.6% jump in July, because of the grounding of the Boeing (NYSE:BA) 737 Max aircraft, Statscan said.

That sustained increase surprised TD Securities' Robert Both. "We think when those (groundings) come off over the next couple of months that should take a little heat out of things," he said.

CPI common, which the central bank says is the best gauge of the economy's underperformance, fell to 1.8% from 1.9% in July.