Inflation accelerates to 1.6% in September; retail trade contracts in August

The country’s annual inflation rate accelerated last month but economists believe it’s unlikely the increase will push the Bank of Canada to raise its key interest rate next week.

Higher gasoline prices helped push the annual pace of inflation in September to 1.6 per cent, up from 1.4 per cent a month earlier and away from its two-year low of just one per cent in June, Statistics Canada reported Friday.

Experts, however, say the inflation reading remained weak enough to encourage the bank to hold off on moving its benchmark rate at next Wednesday’s scheduled policy meeting.

The inflation-targeting central bank scrutinizes Statistics Canada’s consumer price index ahead of its rate decisions.

Only one of the bank’s three preferred measures of core inflation, which seek to look through the noise of more-volatile items, was higher in September while the others stayed put. All three were below the bank’s ideal target of 2.0 per cent.

Overall, excluding gas prices, inflation was only 1.1 per cent.

Nick Exarhos, senior economist for CIBC World Markets, predicted the inflation outlook could actually remain “anemic” for quite some time.

“(This) also actually suggests that the Bank of Canada will take a more-gradualist approach with interest-rate hikes going forward,” Exarhos said.

Canada’s central bank has already raised its key rate twice this year, in July and September, to 1.0 per cent from 0.5 per cent — a historically low level.

Josh Nye, economist for RBC Economics Research, agreed the Bank of Canada will likely keep its key rate at one per cent next week. He doesn’t expect another rate hike until December.

“Given their ‘particularly data dependent’ stance, we think this gives the bank cover to be a bit more patient in removing accommodation following consecutive rate hikes in July and September,” Nye wrote in a note to clients.

Statistics Canada also released numbers Friday that show retail trade contracted 0.3 per cent in August, after increasing 0.4 per cent in July, to register the economy’s weakest month of growth since February. Retail sales volumes in August recoiled 0.7 per cent.

Excluding sales at gas stations and auto dealers, the report said retail trade was down 1.3 per cent in August. Sales were also down 2.5 per cent at food and beverage stores and 2.4 per cent at furniture and home furnishings stores.

The retail sales data suggests the economy is starting to show signs of slowing down, as widely expected, following its red-hot performance in the first half of the year.

Jimmy Jean, senior economist for Desjardins, characterized the retail sales report as a “big disappointment.” He also doesn’t expect the bank to move the rate next week.

“This being said, the broader trajectory of the Canadian economy remains constructive,” Jean wrote in a note to clients.

On inflation, the report highlighted gasoline, travel tours and air transportation as the biggest upward contributors to consumer prices. The downward pressure was led by cheaper electricity, women’s clothing furniture.

The report also found that consumer prices rose in seven of the 10 provinces in September.