Canadians paying more for food, but less for fuel

Index finds Canadians are paying more for potatoes, fish and apples

The country's annual inflation rate was 1.3 per cent in July as Canadians paid more for shelter and food but less for fuel, Statistics Canada said Friday.

This overall inflation number in the federal agency's latest consumer price index came in a little weaker than the 1.5 per cent year-over-year increase in June.

Prices climbed in most major categories compared with 12 months earlier, with the cost of shelter and food items generating the biggest upward nudges on inflation, the report said.

For example, the index found that Canadians paid 9.8 per cent more for potatoes last month compared with July 2015, 10.3 per cent more for fresh or frozen fish and 15.6 per cent more for apples.

Under the shelter category, the price of electricity was 5.4 per cent higher than the year before.

In contrast, gasoline prices fell last month by 14 per cent compared to a year earlier, fuel oil dropped 13.4 per cent and natural gas slid 10.3 per cent.

The agency's core annual inflation rate, which omits some volatile items like gasoline, stayed at 2.1 per cent last month.

Dawn Desjardins, RBC's deputy chief economist, wrote in a research note to clients that she expects the gap to eventually narrow between the headline and core inflation rates—to the point that they could merge near the two-per-cent mark, which is the Bank of Canada's ideal target.

She said the central bank has pointed to factors like low energy prices, among other things, in keeping headline inflation lower than two per cent.

"Heading into the latter part of this year, the impact of these factors will reverse lifting the headline rate, but doing little to shift the core measure from two per cent,'' Desjardins wrote.

"Further, reducing interest rates would undo some of the necessary cooling in housing-market activity...

"Given these factors, we expect the bank to hold the overnight rate (at) 0.5 per cent, not only through the remainder of this year but through 2017 as well.''

By province, the Statistics Canada report found that Newfoundland and Labrador once again saw the highest inflation of any province last month at 3.4 per cent, which followed a 2.4-per-cent rate in June.

In July, people in Newfoundland paid 14.1 per cent more for telephone services and 26.3 per cent more for home and mortgage insurance compared to 12 months earlier.

Statistics Canada also noted that on July 1 the provincial portion of the harmonized sales tax increased in Newfoundland and New Brunswick, where consumer prices rose 2.5 per cent last month.

On Friday, the agency also released its latest data for retail trade, which showed that total sales in June were 0.1 per cent lower than the previous month. The overall number rang in at just over $44.1 billion in June.

By comparison, revised numbers showed that total retail sales were essentially flat in May after rising 0.8 per cent in April.

The agency found that weaker sales at food and beverage stores, down 1.5 per cent compared to May, were a big contributor to the overall June decline in retail sales.

At these stores, beer, wine and liquor sales dropped 4.7 per cent—the largest one-month drop in booze sales since June 2013, Statistics Canada said.

Sales at motor vehicle and parts dealers were up two per cent in June. The category received a boost from a 2.5-per-cent increase in sales at new car dealers, which saw their numbers rise for the first time in five months, the agency reported.

Some analysts described Canada's retail-trade performance as disappointing, though not entirely unexpected.

"Canadian retail spending was due for a breather, and we got one in June,'' said a research note to clients Friday authored by Robert Kavcic and Benjamin Reitzes of BMO.

The BMO economists also wrote that while the volume decline would likely hurt economic growth for June, it's important to remember that the economy was in line for a bit of a rebound.

They added a boost could come from oilsands facilities that resumed production after being shut down due to Alberta's wildfires.

The federal government's enhanced child-benefit cheques, delivered to families in July, could also help boost retail-trade numbers in next month's report, they noted.

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