By Leah Schnurr
OTTAWA, Aug 21 (Reuters) - Canada's annual inflation rate
rose to its highest level in seven months in July as higher
prices for food and clothing offset the moderating effect of
cheaper energy.
A separate report on Friday showed retail sales rose more
than expected in June, though flat volumes dulled the enthusiasm
of analysts looking for signs the economy is pulling out of its
slump.
Economists said the reports had few implications for
monetary policy, with the Bank of Canada looking through
temporary inflation factors. The central bank, whose next policy
decision is in September, has cut interest rates twice this year
to spur the economy, which was likely in recession in the first
half of 2015.
"From a GDP standpoint, it really isn't that positive of a
development," Andrew Kelvin, senior fixed-income strategist at
TD Securities, said of the reports.
"It's still a little early to say what we think what's going
to happen with Q3 until we see the trade data," he said. While
recent trade data was strong, economists are uncertain whether
that will be sustained.
Annual inflation rose to 1.3 percent in July, Statistics
Canada said, shy of economists' expectations for 1.4 percent,
and the highest level since December.
Core inflation, which strips out volatile items and is
closely watched by the bank, rose to 2.4 percent, as forecast.
The bank estimates the underlying inflation trend at about 1.5
percent to 1.7 percent.
"What stands out here is Canada does have one of the higher
headline inflation rates in the industrialized world," said Doug
Porter, chief economist at BMO Capital Markets. "A lot of that
is due to the impact of the weakening Canadian dollar."
The Canadian dollar briefly strengthened to a session high
after the data was released. CAD/
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On a year-over-year basis, prices were up in seven of the
eight major components of the main inflation index, including a
3.2 percent increase in food. While gasoline and other energy
prices fell, the declines moderated.
A monthly increase in gasoline prices and electronics
purchases pushed retail sales up by a greater-than-expected 0.6
percent in June.
But volumes were flat after removing the impact of price
changes, which won't add to growth, Porter said.
"I think it helps the story that things will recover a touch
in (the third quarter)," he said. "It comes too late in the
quarter to really save Q2."