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Canada’s inflation rate unexpectedly quickened in June to the fastest in more than two years on higher food and clothing costs.
The consumer price index rose 2.4 percent from a year ago following May’s 2.3 percent pace, Statistics Canada said today from Ottawa. The core rate, which excludes eight volatile products, increased 1.8 percent after a gain of 1.7 percent the prior month. Both increases exceeded economist forecasts, and came two days after the central bank said it will ignore quicker price gains.
Bank of Canada Governor Stephen Poloz kept his key lending at 1 percent two days ago and said faster inflation this year will be led by temporary gains in energy and import costs. The central bank also said prices will be restrained by slack in the economy over the next two years and that policy makers are “neutral” on their next interest rate move.
“Inflation is clearly warming up,” said Robert Kavcic, a Bank of Montreal senior economist in Toronto. “But Governor Poloz went to great lengths to tell us a good part of it is due to transitory factors,” he said, adding that core inflation would probably need to persist above 2 percent before Poloz would change his message.
Canada’s dollar strengthened after the report, rising 0.3 percent to $1.0731 per U.S. dollar at 9:06 a.m. Toronto time. Five-year government bond yields rose to 1.47 percent from 1.45 percent.
Both the core and total inflation accelerated for the fourth month in a row. It marked the longest sequence of increases in total inflation since 2010 after the last recession, and the longest stretch for core inflation since 2001.
Food prices rose 2.9 percent in June from 12 months earlier, faster than the May pace of 2.3 percent. Meat costs rose 9.4 percent and fresh vegetables gained 9.5 percent. Clothing and footwear inflation accelerated to 1.6 percent from 0.6 percent as retailers offered fewer discounts, Statistics Canada said.
Energy-price gains slowed in June. Electricity costs rose 4.2 percent, down from 7.0 percent in May, while gasoline inflation moderated to 5.4 percent from 6.3 percent.
“Underlying inflationary pressures remain muted,” the central bank said in its quarterly economic forecast paper. “Beyond the near term, the inflation projection is little changed,” from three months ago.
The central bank is mandated to keep consumer-price increases in the middle of a 1 percent to 3 percent band.
On a monthly basis, total inflation rose 0.1 percent in June and the core rate fell 0.1 percent.
Economists surveyed by Bloomberg predicted that monthly prices would be unchanged in June and the core rate would decrease 0.2 percent.
Seasonally adjusted inflation rose 0.3 percent in June and the adjusted core rate rose 0.2 percent.