Inflation heats up in August

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Julian Beltrame
Ottawa— The Canadian Press
Published Wednesday, Sep. 21, 2011 7:07AM EDT
Last updated Wednesday, Sep. 21, 2011 10:33AM EDT

Inflation in Canada rose above the Bank of Canada's comfort level last month as higher prices for gasoline and food pushed the rate up four notches to 3.1 per cent, Statistics Canada reported Wednesday.

The surprisingly strong gain in the cost of consumer goods reverses a recent trend towards more moderate inflation, which had seen the rate fall from 3.7 during May to 2.7 in July.

On a month-to-month basis, prices rose 0.3 per cent from July to August.

Core or underlying inflation, which excludes volatile items such as energy and some foods, also saw a sizable increase to 1.9 from 1.6 per cent, pushing close to the central bank's two-per-cent target.

In a speech Tuesday, Bank of Canada governor Mark Carney said he was not concerned about inflation and would not raise interest rates to deal with the issue. The bank's mandate is to keep consumer prices within a range of one and three per cent, and as close to two as possible.

With the global economy entering what the International Monetary Fund called a “new dangerous phase,” most analysts agree that inflation will moderate as demand diminishes.

But at the moment Canada is getting the worst of both scenarios, stubbornly high inflation and a slowing economy.

Gasoline and food, two items that constitute significant portions of household spending, continue to be big drivers of annual inflation. Gasoline was 22.8 per cent more expensive last month than in August 2010, food cost 4.4 per cent more, and food bought at grocery stores was five per cent higher.

“Excluding food and energy, the consumer price index increased 1.5 per cent in August after advancing 1.2 per cent the previous month,” Statistics Canada noted.

Passenger vehicles, electricity, homeowners' house and mortgage insurance, telephone service and jewelry also contributed to the increase in annual inflation from July, the agency added.

Not all consumer goods and services are rising, however. Mortgage interest costs declined 1.7 per cent, video equipment was down 13.9 per cent, prescribed medicines slipped 3.9 per cent, natural gas one per cent, and digital computing equipment and devices fell 10.4 per cent.

Still, prices rose in all eight major components tracked by Statistics Canada, and increased at a faster pace than the previous month in five of those components.

Prices also increased at a faster pace for eight of the 10 provinces, with New Brunswick continuing to experience the highest inflation in the country at 4.1 per cent.