Canada's Housing Bubble

Sep 21, 2011 Greg Quinn bloomberg.com

Canada’s inflation rate accelerated more than economists forecast in August, with gains led by gasoline, insurance premiums and food.

The consumer price index increased 3.1 percent in August from a year earlier, compared with a July pace of 2.7 percent and a May peak of 3.7 percent, Statistics Canada said today in Ottawa. Economists surveyed by Bloomberg News predicted a 2.9 percent reading according to the median of 26 responses.

The core inflation rate, which excludes eight volatile items such as gasoline, quickened to a 1.9 percent pace, the fastest since April 2010, from July’s 1.6 percent. Economists expected the rate to be unchanged.

Inflation has been above the Bank of Canada’s 2 percent target for nine months, even after the economy shrank in the second quarter. Governor Mark Carney said in a speech yesterday that Canada’s recovery is hobbled by a weak U.S. economy and Europe’s debt crisis, and he may extend a period of low interest rates beyond when full production returns.

“It is still the external environment that’s the real concern,” said Mark Chandler, head of fixed-income strategy at Royal Bank of Canada’s Capital Markets unit in Toronto. Investors are still betting the central bank’s next move will be a rate cut, and it may take reports proving “a decent bounce back in growth for the third quarter” to change that, he said.