Inflation cools to 1% in Canada even as food prices soar

Canada's consumer price index rose one per cent in September from a year earlier, down from the 1.3 per cent annual rate in August, because of deeper decline in gasoline prices in September, according to Statistics Canada.

However, food prices soared, as the low loonie pushed up freshvegetable prices by 11.5 per centand the rise in meat prices hit 4.4 per cent. Overall, food prices were up 3.5 per cent from a year ago.

Gasoline prices fell 18.8 per cent from this time last year, Statistics Canada said.

Core inflation, the inflation rate without the effect of volatile products such as gasoline and food, stood at 2.1 per cent, the same increase seen in August. This is a key measure, closely watched by the Bank of Canada when it makes its decisions about interest rates.

The central bank's target for core inflation is two per cent, and seeing CPI at or above that level should forestall any rate cuts by the bank and even push it to move sooner on a rate hike, depending on when the U.S. Federal Reserve moves to lift its benchmark rate.

Weak growth in the Canadian economy is pulling the Bank of Canada in a different direction, as its recent report on the economy highlighted.

Weaker than implied

"The Bank of Canada has begun to highlight the rate of 'underlying inflation,' which attempts to strip out temporary factors to highlight the 'true' inflation rate," said TD economist Brian DePratto.

"This week's monetary policy report reconfirmed that the bank sees this 'underlying' rate as being in the 1.5 per cent to 1.7 per cent range a weaker pace than implied by core inflation," he wrote in a report to investors.

The temporary factor isthe low Canadian dollar, which Statistics Canada data shows pushed up the price of back-to-school shopping in September.

The recreation, education and reading index increased by2.5 per cent, and clothing and footwear were up 1.2 per cent. Tuition costs rose an average of 2.8 per cent.