Inflation’s ‘momentum’ temporary: BoC
OTTAWA • It’s unlikely a spike in consumer prices will knock the Bank of Canada off its long-range course for interest rates.
Inflation rose to a two-year high in June — led by food, shelter and transportation costs — surpassing monthly forecasts by economists and overtaking the central bank’s own predictions for the second quarter.
The overall Consumer Price Index rose by an annual pace of 2.4% last month, following a year-over-year advance of 2.3% in May, Statistics Canada said Friday. Most analysts had expected price increases to remain flat at 2.3% in June. Last month’s inflation rate was the highest since February 2012, when the year-over rate of gains reached 2.6%.
Meanwhile, core inflation — stripping out volatile items, including some food and energy products — rose by 1.8% in June, compared to an annual rate of 1.7% a month earlier. The consensus of analysts was for no change in the core rate.
“Some accuse the bank of ignoring the recent run-up in inflation, but it needs to focus on where inflation is going to be 18-24 months down the road, because monetary policy takes time to have an effect on the real economy,” said Leslie Preston, at TD Economics.
In its quarterly Monetary Policy Report, issued on Wednesday, the bank maintained that recent prices increases would prove temporary.
“It forecasts that inflationary momentum is expected to ebb next year,” Ms. Preston said.
In its MPR, the bank forecast said inflation would track at 2.1% between April and June. However, with the June CPI report, the secondquarter reading now works out 2.2% — the biggest increase since the first quarter of 2012.
“Wages remain so muted that it’s unlikely that this mini-burst in prices is going to be sustained for long,” said Douglas Porter, chief economist at BMO Capital Markets.
There might be “a ratcheting up of energy prices due to geopolitical [concerns], but barring that, I suspect a lot of this run-up that we’re seeing in other goods is a bit of a reaction, or response, to the extremely low readings we saw in 2013,” he said.
The bank’s inflation target is 2%, the midday point of policymakers’ 1%-to-3% comfort range. Their main tool for keeping inflation on target is the central bank’s benchmark lending rate, which has been at a nearrecord low of 1% since September 2010 — a level meant to stimulate economic growth after the recession. Most economists don’t expect the Bank of Canada to alter that rate until mid-2015, at the earliest.
In Friday’s report, Statistics Canada said shelter costs rose 2.9% on an annual basis in June, down from a 3.4% year-over-year increase in May.
The federal data agency said consumers paid more for natural gas and property taxes in June than during the same month a year earlier. However, electricity prices rose by 4.2% from an annual pace of 7% in May.
Food costs were up by 2.9% in June, compared to a 2.3% annual gain the previous month. It cost more for meat and fresh vegetables last month, with food purchased at restaurants also more extensive.
Within the transportation sector, gasoline prices jumped by 5.4% in June, but that was still lower than the 6.3% annual rate of increase in May. Clothing and footwear prices rose by 1.6% year-over-year in June, up from a 0.6% pace the previous month.