By Promit Mukherjee
OTTAWA (Reuters) – Canada’s annual inflation rate rose 1.9% in August as petrol prices on a yearly basis fell at a slower pace than the previous month and food prices were up slightly, data showed on Tuesday.
The annual inflation rate has been largely distorted by the cancellation of the carbon levy on petrol sales, which has helped bring down the cost of the fuel on a yearly basis, and economists have focused on core inflation measures to gauge the trend of prices.
On a monthly basis, the consumer price index was down 0.1% in August, Statistics Canada said.
Analysts polled by Reuters had forecast the annual inflation rate at 2% in August from 1.7% in July, and on a month-on-month basis to increase by 0.1% from 0.3% in the prior month.
The lower-than-expected rise in inflation is likely to bolster chances of a rate cut on Wednesday by the Bank of Canada, even though there are still concerns that underlying inflation was still high.
Money markets are expecting an almost 93% chance of a 25 basis point rate cut on September 17.
The Canadian dollar was trading up 0.13% after the inflation data to 1.3761 to the U.S. dollar, or 72.67 U.S. cents. Yields on two-year government bonds were up 1.1 basis points to 2.507%.
The BoC has kept its benchmark policy rate on hold since March at 2.75%, but a slew of data in the last few weeks has propped up the case for restarting the rate reduction cycle.
Petrol prices were the biggest contributor to the rise in inflation in August and rose 1.4% on a monthly basis. However on a yearly basis, the price of fuel dropped 12.7% in August from 16.1% decline in July, the statistics agency noted. This helped in bringing down transportation costs by 0.5% in August.
Excluding gasoline, the CPI rose 2.4% in August, after increasing 2.5% in each of the previous three months, StatsCan said.
One of the core measures of inflation, the CPI-median, or the centermost component of the CPI basket, mirrored the prior month’s 3.1% rise in August. The other core measure CPI-trim, which excludes the most extreme price changes, fell to 3% from 3.1% in July.
The share of the CPI basket which is above 3% rose to 39.1% in August from 37.3% in July, indicating resilient underlying inflation.
Prices for shelter, which accounts for almost 30% of the CPI basket, rose by 2.6% in August from 3% in July as costs for both mortgage costs and rents eased.
Food prices rose by 3.4% in August as prices for meat rose 7.2% year over year, following a 4.7% increase in July, StatsCan said.
(Reporting by Promit Mukherjee; Editing by Dale Smith)
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