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Inflation rate at 2.4 per cent

Canadians continue to pay more for food, gasoline and most other consumer items, Statistics Canada said Friday as the annual inflation rate in the country rose to a new two-year high of 2.4 per cent in June.

The one-tenth increase in the so-called headline inflation rate was matched by an identical gain in the core reading to 1.8 per cent, very near the Bank of Canada's two per cent target. The central bank watches core closely because it is a better indicator of underlying price pressures as it does not include volatile items such as energy.

Still, the steady march in prices since October, when annual inflation stood at 0.7 per cent, has been more persistent and stronger than the central bank and most economists had envisioned, although the Bank of Canada continues to believe the phenomenon will be short-lived.

Earlier this week, bank governor Stephen Poloz said the surprising strength in inflation has been mostly due to temporary factors, such as the high cost of energy.

But the considerable slack in the economy, low wage gains, and strong competition in the retail sector should work their way through the system to moderate prices going forward, he said. The bank sees inflation dipping below two per cent in the next year or so before returning to target in 2016.

Poloz did make one concession to events — he dropped his warning that a key risk to the economy is low inflation.

June's gains showed more broad-based pressure on prices. Energy, particularly gasoline and natural gas, continued to be main drivers with year-over-year gains of 5.4 per cent and 19.4 per cent over last June. Both, however, were higher in May and so represented a moderating if still significant influence on inflation.

Overall, the energy index rose 6.7 per cent last month, compared to 8.4 per cent in May.

Meanwhile, food prices are becoming an increasingly important factor, increasing 2.9 per cent in June from 2.3 per cent in May. Food purchased in stores rose even more to 3.2 per cent as consumers paid 9.4 per cent more for meat and 9.5 per cent for fresh vegetables than they did last year at this time.

The Canadian Press

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