Canadian CPI Inflation

August 19, 2009

Consumer prices declined 0.3% between June and July and by 0.9% over the past twelve months.  The on-year change represents a deeper drop after June’s minus 0.3% and a 4.4 percentage point swing from an increase of 3.5% in the year to August 2008.  Over the past year, energy prices tumbled 23.4%, food rose 5.0% and all other consumer prices went up 1.0%.  The Bank of Canada’s core inflation measure increased 1.8%, down from 1.9% in the year to June and the fifth sub-2% reading in the last seven months.  Monetary officials target core inflation at 2.0%.  Total inflation is already under the expected path assumed by the central bank.  The July Monetary Policy Report penciled in total CPI at +0.1% on-year in 2Q09 and a cyclical low of -0.7% in 3Q09.  Core inflation was projected at 1.9% in the second quarter, 1.6% in the third quarter and a cyclically low 1.4% in the fourth quarter of this year and first quarter of 2010.  Both core and total CPI inflation are projected to drift upward thereafter, reaching 2.0% in the second quarter of 2011. 

The Bank of Canada’s overnight target interest rate has been at 0.25% since April 21st, and officials have promised not to raise it before mid-2010 assuming inflation remains contained, which it has to a greater-than-desired extent.

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.



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