Inflation drops to 1.7% on lower gas prices
Canada's annual inflation rate tumbled by half a percentage point to 1.7 per cent last month as prices at the gas pumps fell across the country.
That's the country's lowest inflation rate in eight months, and followed four consecutive monthswith a 2.2 per cent inflation reading.
Statistics Canada said gasoline prices were 7.7 per cent lower in August than they were a year earlier. That was the biggest drop in gas prices since last January. Crude oil prices fell in August.
"With the strength of the Canadian dollar in relation to the U.S. greenback, local refineries were able to pay less for crude oil in August 2007 than they did during the same period in 2006," Statistics Canada said.
On a month-over-month basis, the cost of living actually fell 0.3 per cent from July, mainly because of the decreasein gasoline prices. That's the biggest monthly drop in the CPI in almost a year.
Prices for new cars and fresh vegetables also fell in August. The only provinces where the cost of living rose faster than the national average were Alberta (up 4.7 per cent) and Saskatchewan (up 2.5 per cent).
Those two provinces experienced the highest annual increases in housing costs. The costs for new housing rose by double digits in both Saskatchewan and Alberta, and mortgage costs had their biggest annual rise in 16 years as homeowners renewed at higher rates.
The core rate of inflation, which excludes the most volatile items in the price index, eased by a tenth of a percentage point to 2.2 per cent. Withinflation easing, the Bank of Canada faces little immediate pressure to increase interest rates.
That took some steam out of the high-flying dollar. It fell about a third of a cent to 98.30 cents US after the inflation report was released — backing off highs above 99 cents US reached in overnight trading.
"While the labour market remains very tight, and wages are beginning to bubble up, the underlying U.S. slowdown and the crunch on import prices from the soaring Canadian dollar are finally putting a brake on inflation pressures," BMO Nesbitt Burns economist Doug Porter said in a morning commentary.
Some economists say the Bank of Canada could eventually hike rates again."We expect that should credit conditions ease by year-end, the bank will refocus on the upside risks to inflation," said TD Bank economist Ritu Sapra.
"As yet, we cannot rule out the possibility of a [quarter of a percentage point]rate hike in December or January."
RBC senior economist Dawn Desjardins agreed. "Our forecast remains that the Bank of Canada will hold the policy rate at 4.5 per cent in the near-term with an eye to tightening policy once the risks from financial market stress have abated."