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Canada's inflation rate below zero for third consecutive month in August

OTTAWA - Canada's economy is advancing at a robust rate typical of early stages of a recovery, although new inflation numbers suggest there is still room for improvement, according to Statistics Canada data released Thursday,

OTTAWA - Canada's economy is advancing at a robust rate typical of early stages of a recovery, although new inflation numbers suggest there is still room for improvement, according to Statistics Canada data released Thursday,

The country's composite leading indicators index, a broad measure of activity that's designed to show where the economy is headed in coming months, advanced an impressive 1.1 per cent last monthly.

That was twice the gain that economists had forecast and the biggest jump in nearly 7 1/2 years.

"The increase was the largest since April 2002," the agency said, adding: "Growth in the leading index usually only exceeds one per cent early in the recovery from a downturn.""

The broad-based nature of the advance - with eight of 10 components gaining, including the battered manufacturing sector - surprised economists, who had been expecting more moderate growth.

"This is certainly a nice surprise," said TD Bank economist Charmaine Buskas.

"We are seeing a confluence of better-than-expected data. We haven't seen the export numbers yet, but the domestic drivers of the economy are solid.""

The report helped push the Canadian dollar past 94 cents US on Thursday for the first time since last October, when economic downturn began for real in Canada.

One of the reasons the Canadian economy appears to be recovering faster than even the Bank of Canada's previously optimistic forecast indicated is that the U.S. appears to have gotten out of recession - aided by massive government spending and a wildly-popular cash-for-clunkers program that revived auto sales.

As well, economists say the United States is in the process of re-stocking depleted inventories, which should aid Canadian exports in the second half of 2009.

The Canadian Imperial Bank of Commerce says the increased demand, both in the export and Canada's domestic economy, should push economic growth to just over three per cent during the last half of this year, much better than the Bank of Canada's prediction of about two per cent average growth.

"It's going to be good the rest of this year, but our concern is really next year when all the re-stocking in the U.S. is done," said CIBC economist Krishen Rangasamy.

Buskas noted that August's inflation numbers, which showed overall prices remained in negative territory for the third straight month at -0.8 per cent, indicate there was still ample softness in the economy.

And economists point out that, while a three-per-cent growth rate appears impressive, it still constitutes sluggish activity because it is based on a smaller economy than existed before the recession. Best estimates are that the economy is about 3.4 per cent smaller today than it was last year at this time.

Still, Canada has seen a string of strong economic indicators in the past few days that many would have thought unlikely several months ago when the economy was still sliding toward bottom.

July factory shipments rose 5.5 per cent in a strong indicator of the ramping up of auto production.

Retail sales and house sales have also performed better than expected this summer and job creation, normally one of the last indicators to recover from slumps, was positive in August, reversing an almost year-long trend. On Wednesday, the Conference Board of Canada reported new online jobs postings also rose in August, signalling a rising demand for workers.

Economists expect the pace of recovery will slow somewhat next year, in part because the U.S. rebound will taper off as government stimulus diminishes.

But they also see the Bank of Canada keeping interest rates at very low levels throughout 2010, helping keep demand in the Canadian economy positive.

Thursday's inflation numbers for August give the central bank no reason to move off its commitment to keep the trendsetting policy rate at the record low of 0.25 until mid-2010, and some economists believe it will stay there into 2011.

While inflation remained below zero, that was almost all due to gas prices being significantly lower than at this time last year. Excluding energy, inflation would be at 1.4 per cent, close to the two-per-cent target the central bank desires.

Economists believe this year's inflation will again turn positive - but stay moderate - in November, the time gas prices cooled last year.

"Inflation is not a concern in Canada and neither is deflation," said Rangasamy.

Royal Bank economist Dawn Desjardins agreed, adding that "despite signs that Canada's economy emerged from recession in the summer ... the Bank of Canada will keep its focus on ensuring that the growth revival remains on track."

Food appears to be the only remaining big driver of inflationary pressures, but that item too is moderating. Prices increased by four per cent annually in August, as opposed to a growth rate of five per cent in July and 5.5 per cent in June.

The economy, specifically retailers and the tourism industry, got a little more good news Thursday with a report that showed travel from the United States to Canada reached 1.6 million trips in July, up 4.9 per cent from June.



The annual inflation rate was a negative 0.8 per cent in August, says Statistics Canada. The agency also released rates for major cities, but cautioned that figures may fluctuate widely because they are based on small statistical samples (Previous month in brackets):

-St. John's, N.L., -0.2 (-0.4)

-Charlottetown-Summerside, -0.5 (-0.8)

-Halifax, -0.6 (-0.7)

-Saint John, N.B., -0.2 (-0.4)

-Quebec, 0.6 (0.0)

-Montreal, 0.6 (-0.1)

-Ottawa, -0.9 (-1.0)

-Toronto, -1.0 (-1.1)

-Thunder Bay, Ont., -1.5 (-1.6)

-Winnipeg, -0.5 (0.0)

-Regina, 1.4 (1.5)

-Saskatoon, 0.7 (0.8)

-Edmonton, -1.2 (-1.5)

-Calgary, -0.8 (-1.1)

-Vancouver, -0.8 (-1.6)

-Victoria, -0.8 (-1.1)


The annual inflation rate was a negative 0.8 per cent in August, says Statistics Canada. Here's what happened in the provinces and territories. (Previous month in brackets):

-Newfoundland and Labrador -0.7 (-0.9)

-Prince Edward Island -0.8 (-1.3)

-Nova Scotia -0.8 (-1.0)

-New Brunswick -0.2 (-0.4)

-Quebec 0.4 (-0.3)

-Ontario -1.0 (-1.2)

-Manitoba 0.0 (-0.4)

-Saskatchewan 1.0 (0.8)

-Alberta -1.7 (-1.7)

-British Columbia -1.1 (-1.6)

-Whitehorse, Yukon -1.0 (-0.8)

-Yellowknife, N.W.T. -0.5 (-0.1)

-Iqaluit, Nunavut 1.6 (1.5)

 
 
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