Canada's annual inflation rate accelerates to 0.5% in September

Canada’s annual inflation rate in September rose to 0.5%, from 0.1% in August, on transportation, recreation and higher prices for new housing, Statistics Canada said on Wednesday.

Analysts polled by Reuters had expected the annual rate to be 0.4% in September.

The Canadian dollar CAD= extended a slight gain, touching 1.3107 to the greenback, or 76.30 U.S. cents, after the data.

Gasoline prices fell 10.7% in September on a year-over-year basis. Air transportation prices fell less than usual in September, as traditional travel patterns continued to be disrupted by the COVID-19 pandemic.

“On the face it’s not a bad batch of data,” said Andrew Kelvin, chief Canada strategist at TD Securities. “That being said, headline inflation at +0.5% year-over-year, that is a very low level of inflation. It suggests monetary policy will need to remain accommodating for a long period of time.”

Bank of Canada Governor Tiff Macklem said earlier this month that bold policy actions taken in response to the coronavirus pandemic had been needed but will make the economy more vulnerable to economic shocks down the road.

The three core measures of inflation were little changed. The common measure, which the Bank of Canada says is the best gauge of the economy’s underperformance, remained at 1.5%.

Canadian retail sales, meanwhile, rose by 0.4% in August from July, missing analyst expectations of a gain of 1.1%. Statscan’s preliminary estimate for September suggested the measure would be flat for that month.

“Unfortunately retail sales were disappointing ... the initial flash for September is also sluggish. That probably overshadows the CPI,” said Doug Porter, chief economist at BMO Capital Markets.