Canadian economy pumps out disappointing inflation, retail trade numbers

The Canadian economy produced two batches of disappointing numbers Friday that experts said were certain to catch the Bank of Canada's attention.

But despite unexpectedly weak inflation and retail sales data released by Statistics Canada, economists predicted the central bank will refrain from touching its benchmark interest rate any time soon.

The country's annual inflation rate was 1.1 per cent in August as lower fuel prices dragged the reading to the lower reaches of the Bank of Canada's target range. The result was below the 1.3 per cent year-over-year increase in July.

The federal agency also released fresh retail trade figures that showed total sales slipped 0.1 per cent in July, compared with the previous month. Revised figures showed that month-over-month retail sales were essentially flat in May and June after rising 0.8 per cent in April.

On inflation, the August consumer price index found prices rose in most major categories compared with a year earlier -- with the cost of electricity, air transportation and passenger vehicles contributing the biggest upward pushes to the overall inflation rate.

A closer look at the numbers revealed that Canadians paid 14.5 per cent more for apples compared with a year earlier, 9.3 per cent more for fresh or frozen fish and 5.3 per cent more for cigarettes.

But increases like those were offset by lower prices for items like gasoline, which dropped 11.5 per cent, fuel oil, which fell 11.8 per cent and natural gas, which slid 9.9 per cent.

Economists had predicted inflation to ring in at 1.4 per cent in August, according to Thomson Reuters.

Desjardins senior economist Jimmy Jean wrote in a research note to clients Friday that by coming in under expectations the inflation rate is "preoccupying" for the Bank of Canada.

The August reading was near the bottom fringe of the central bank's target range of one to three per cent.

Jean noted core inflation, which omits some volatile items like gasoline, fell below two per cent after five months above that level. The Bank of Canada's core index was 1.8 per cent last month, down from 2.1 per cent in July.

Still, with Canada struggling to find a way out of a prolonged period of slow-growth, he doesn't expect this report to prompt the bank to make a move for nearly two years.

Jean recalled that while the economy just emerged from a second quarter that delivered the country its worst contraction since 2009, the third-quarter forecast is much stronger.

Statistics Canada's retail trade data showed that overall sales dipped slightly in July and totalled just over $44.1 billion.