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By Leah Schnurr
OTTAWA, Sept 18 (Reuters) - Canada's annual inflation rate
held steady in August as lower gasoline prices moderated the
higher cost of food, data showed on Friday, suggesting the Bank
of Canada has room to keep interest rates low.
Annual inflation was 1.3 percent last month, according to
Statistics Canada, the same as in July and matching economists'
forecasts.
Core inflation, which strips out volatile items and is
closely watched by the Bank of Canada, was less muted at 2.1
percent, though that was down from July's 2.4 percent.
The bank, which has an inflation target of 2 percent, sees
the effects of a weaker currency and some sector-specific
factors as temporarily boosting the core rate.
Economists did not expect Friday's figures to change the
path of monetary policy.
"I think it'll be another case where they'll be indicating
the numbers are in line with their forecast and, as a result,
reason just to hold policy steady here in the near-term," said
Paul Ferley, assistant chief economist at Royal Bank of Canada.
The Bank of Canada has cut interest rates twice this year to
try to bolster an economy that was in mild recession in the
first half of 2015.
The central bank is widely expected to hold rates at 0.50
percent when it meets next month, with markets pricing in just a
22 percent chance of a third rate cut in October. BOCWATCH
The Canadian dollar was little changed against the greenback
immediately after the inflation report, as investors also
considered Thursday's decision by the U.S. Federal Reserve not
to raise interest rates. CAD/
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Prices were up on an annual basis in seven of the eight
major components of the overall consumer price index. Food saw
the biggest increase, with prices up 3.6 percent, but gasoline
prices continued to drop and were down 12.6 percent annually.
There are some cross-currents at play that will unfold over
the coming months, said Doug Porter, chief economist at BMO
Capital Markets.
"On the one side, of course, gasoline prices have plunged
anew and that should undercut the headline inflation rate
somewhat, but on the other side, there is some talk of a
repricing of a lot of items because of the summer decline in the
Canadian dollar," said Porter. "We'll have to see if that does
play out in core inflation or not."