Inflation increases to still-mild 1.5 per cent in June: StatsCan

Drop in gasoline costs offsets higher electricity, food costs
|labour-reporter.com|Last Updated: 07/20/2012

Canadian inflation climbed in June from a two-year low in May but not enough to force the Bank of Canada to act any time soon on its hawkish warning that it would break ranks with its global peers and raise interest rates.

Annual inflation rose to 1.5 per cent last month from 1.2 per cent in May, well below the Bank of Canada's two per cent target, according to Statistics Canada data on July 20. A drop in gasoline and natural gas prices partially offset higher prices for electricity, food, and homeowners' replacement costs.

Core inflation, which strips out gasoline and seven other volatile items, came in at 2.0 per cent from 1.8 per cent in May.

Analysts in a Reuters poll had forecast June inflation at 1.8 per cent and a core rate of 2.3 per cent.

The cost of electricity rose by 5.9 per cent from last year, with most of the increases in Ontario, Alberta and British Columbia.

The cost of energy declined 0.8 per cent in the past 12 months, this follows a decrease in May.

Food rose two per cent on an annual basis, along with transportation costs by 1.7 per cent and shelter costs with an increase of 1.3 per cent.

Regionally, rates remained somewhat neutral as inflation ranged from a high of 2.2 per cent in Newfoundland and Labrador, to a low of 1.2 per cent in Ontario.

The Bank of Canada downgraded its inflation forecasts and the Statscan data backed up that view in its quarterly forecasts on July 18. Inflation averaged 1.6 per cent in the second quarter, a notch below the bank's prediction, while the average core rate was right on the mark at 2.0 per cent.

On June 17, the bank extended a two-year freeze on its benchmark lending rate, holding it steady at 1.0 per cent, but repeating a hawkish warning that rate hikes "may become appropriate" as the economy gets closer to its full capacity.

In the U.S., consumer prices were flat in June as the cost of gasoline dropped. Overall consumer prices rose 1.7 per cent year on year in June after increasing by the same margin in May. Core inflation rose 0.2 per cent for a fourth straight month.

— with files from Reuters

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