Inflation drops to 1.7%

Cost of clothes and footwear drop

Canada’s annual inflation took a dip to 1.7% in August, down from 1.8% in July.

Core inflation, one of the main metrics the Bank of Canada looks at when deciding to increase interest rates, remains below the target of 2.0% at 1.6% for the second month in a row.

Overall inflation saw a massive jump of 0.8% between July 2009 to July 2010 following the introduction of HST in Ontario and BC. The increase in inflation over last year can also be attributed to a raise in energy costs of 5.0% since August 2009.

Other year on year increases include:

  • Electricity – 7.7%
  • Car insurance – 5.1%
  • Restaurant prices – 2.5%
  • Transportation – 2.0%
  • Health and personal care – 3.5%

It was only in the clothing and footwear category that we’ve seen a decrease of 2.2% since this time last year.

The mortgage interest cost index, which measures the change in the interest portion of payments on outstanding mortgage debt, dropped 3.8% in August, following a 4.2% decrease in July.

Ontario recorder the largest 12 month inflation increase of 2.9%, followed by Newfoundland and Labrador with an increase of 2.4%.

This news precedes the announcement expected today by the US Federal Reserve that the key overnight lending rate in America will remain unchanged. The benchmark interest rate has been in a range of zero to 0.25% since December 2008. The Fed is scheduled to announce its decision at roughly 2:15 p.m. in Washington. Bloomberg surveyed several economists earlier this month and the forecast is that the central bank will hold rates steady until late 2011.

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