Consumers in the nation’s capital found themselves paying a little bit more for household goods and services last month as the city’s inflation rate accelerated, Statistics Canada reported.
The consumer price index was up 1.3 per cent, year-over-year, in Ottawa in September, the federal agency said. The inflation rate had been steady at 0.9 per cent in July and August.
On a national level, weaker-than-expected inflation and a drop in retail sales helped to fuel speculation Friday about a possible interest rate cut by the Bank of Canada.
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While economists say the bar for a cut is high, the economic data did nothing to quell talk about a future rate cut following comments by Bank of Canada governor Stephen Poloz earlier this week that the possibility was actively discussed by the central bank’s governing council.
Bank of Montreal chief economist Doug Porter said the weak economic data may stoke talk that the Bank of Canada will cut interest rates at some point over the next six months.
“I think what we’re going to be watching is what happens to home sales in the next three to four months and what happens to exports in the next few months. I think those really are the keys,” Porter said.
The Bank of Canada downgraded its economic outlook in its fall monetary policy report this week due to expected softness in the housing market and a weak outlook for exports.
The central bank cut its forecast for economic growth to 1.1 per cent for this year, down from its July projection of 1.3 per cent, and lowered its estimate for 2017 to two per cent compared with an earlier call for 2.2 per cent.
Statistics Canada said Friday that the consumer price index was up 1.3 per cent in September compared with a year ago. The increase was up from a year-over-year increase of 1.1 per cent in August.
Economists had expected inflation to clock in at 1.5 per cent in September, according to Thomson Reuters.
CIBC economist Nick Exarhos said the tame inflation should give the Bank of Canada room to cut interest rates if the economy weakens further.
“The Bank of Canada struck a decisively dovish tone this week, and the latest set of figures on the Canadian economy give reason for investors to remain cautious on the Canadian outlook,” Exarhos wrote in a report.
The Bank of Canada’s core index, which excludes some of the most volatile components, increased 1.8 per cent compared with a year ago, matching the gain in August and in line with economists’ estimates.
Prices were up in all eight major components that it tracks, with the shelter and transportation sectors contributing the most to the rise.
The transportation index gained 2.3 per cent compared with a year ago, while the shelter category was up 1.7 per cent.
Food prices were up 0.1 per cent, the sector’s smallest year-over-year increase since February 2000. Food from stores posted their first year-over-year decline since March 2008, as they fell 0.9 per cent. Food from restaurants was up 2.5 per cent.
Porter said food prices have been a big story this year.
“We had the great cauliflower crisis earlier this year and now vegetable prices are actually down from where they were before and overall grocery prices are actually below where they were 12 months ago. That’s rare to have an outright decline in grocery prices,” he said.
Statistics Canada also reported Friday that retail sales fell 0.1 per cent to $44.0 billion in August due to lower sales at motor vehicle and parts dealers, and general merchandise stores.
Sales were down in seven of 11 subsectors, representing 57 per cent of retail trade.
Motor vehicle and parts dealers saw sales fall 0.5 per cent in the month due to weaker sales at new car dealers, which fell 1.1 per cent, and a 0.6 per cent drop at used car dealers. General merchandise stores reported a 0.9 per cent drop.
Retail sales fell in six provinces in August, with Ontario posting the largest drop in dollar terms as it fell 0.7 per cent.
-With a report by OBJ staff