BUSINESS

Canada's annual inflation steady at 1.3%

Peter Henderson The Canadian Press
Published Friday, September 18, 2015 8:39AM EDT Last Updated Friday, September 18, 2015 1:42PM EDT

Signage marks the Statistics Canada offices in Ottawa on July 21, 2010. (The Canadian Press/Sean Kilpatrick)

Text:

OTTAWA -- Lower costs at the pump in August weren't enough to offset a broad rise in consumer prices including higher prices for restaurant fare, according to the latest inflation report from Statistics Canada.

The federal agency said on Friday that Canada's annual inflation rate held steady at 1.3 per cent in August, unchanged from July.

Food prices were the biggest contributor to inflation last month, rising 3.4 per cent, followed by household operations, which includes telecom services such as cable and Internet as well as home furnishings.

Restaurant prices increased 2.8 per cent over last year, and prices for store-bought food increased four per cent -- but there was some relief for meat-eaters, as the price of beef declined for the second straight month.

StatCan's household operations, furnishings and equipment index increased 2.5 per cent in the 12 months to August.

Yet growth actually fell from July, when the index rose by 3.3 per cent, and the agency chalked up the difference to lower prices for telephone services.

Seven of the eight components of the consumer price index posted gains, with transportation the only laggard as gas prices fell by 12.6 per cent in the 12 months to August.

The transportation sector fell by 2.6 per cent overall as gasoline continued its slide that began late last year, and prices for new passenger vehicles increased less in August than in July.

Inflation has been closely watched for signs of flagging consumer spending following the contraction in Canada's GDP in the first half of the year that raised talk of a recession.

RBC senior economist Nathan Janzen said the first-half recession didn't spill over into the job market, so household incomes have held up despite the downturn.

Combined with cheaper gas, that means the purchasing power of the average Canadian has actually gone up, he said.

"It's not surprising that households are still spending and as a result you're still seeing enough consumer demand to prevent a lot of downward pressure on inflation outside of the energy sector," he said.

The Bank of Canada's core index, which excludes some of the most volatile items, was up 2.1 per cent from a year ago.

The Statistics Canada report was in line with analysts' expectations.

IHS Global Insight Canada economist Arlene Kish said in a research note that the inflation numbers appear to be close to the expectations laid out by the Bank of Canada in its monetary policy report in July.

She said that indicates the central bank will sit back and let the market take its course after two rate cuts earlier this year.

"There is little for the bank to do now but wait and see how the economy continues to adjust to commodity price volatility and weak global growth," she wrote.

Here's what happened in the provinces and territories. (Previous month in brackets):