Inflation Cools but Bank of Canada Expected to Hike Rates

Canadian retail sales fall in August: StatsCan

The central bank, which predicts inflation should move back down toward 2 per cent by early 2019, will announce its next interest rate decision on October 24 and markets are expecting a hike. Statistics Canada has changed the methodology in measuring prices in that sector that is capturing more of the seasonal variation in costs. The 2 percent core rate is consistent with an economy at full capacity - but not one that is overheating and that should give the Bank of Canada scope to proceed with gradual interest-rate increases.

"We have very high household debt levels".

Gas price growth fell to 12 percent year-on-year from August's 20 percent, but the biggest move was air transportation, which went to 7.4 percent from 26.4 percent.

"The biggest factor in last month's swoon was a 16.6-per-cent plunge in airfares, the largest monthly drop in 30 years, which nearly precisely reversed July's 16.3-per-cent spike-which had been the biggest monthly rise in, yes, 30 years", said BMO chief economist Douglas Porter.

"The transportation index increased at a slower pace in September (+3.9%) than in August (+7.2%), but remained the largest contributor to the year-over-year increase", the government statistics agency said in a statement. Alcoholic beverages and tobacco products were up 4.4 per cent.

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"With travel tours also down 3.2 per cent, that meant that tourism overall got a lot cheaper in Canada last month", Porter wrote in a brief report, adding that vehicle prices were up just 0.7 per cent on a year-over-year basis.

The average of the three measures of core inflation, which look to strip out more-volatile items like gas prices and are closely scrutinized by the Bank of Canada, was 2.0 per cent in September compared with 2.1 per cent in August.

Falling sales at gasoline stations led the decline, offsetting a 0.8 per cent gain in the sale of cars and auto parts.

Data released Friday indicates that retail sales declined to $50.8 billion following a 0.2 per cent increase in July. In volume terms, sales decreased 0.3 per cent.

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