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By Yali N'Diaye
     OTTAWA (MNI) - Bank of Canada Governor Stephen Poloz continued to emphasize
Thursday the temporary nature of factors behind inflation numbers that have been
persistently above target.
     In July, Canada's CPI rose 3.0% year-over-year from 2.5% in June and 2.1%
in May, testing the upper bound of the 1%-3% operational range. The central bank
attributed this higher-than-expected increase "in large part" to the jump in
airfare in its September policy statement.
     While the headline inflation rate declined to 2.8% in August, raising
questions about the temporary nature of upward pressures, it remained well above
the 2.0% mid-range target.
     In addition, the three preferred measures of core inflation, while still
around 2.0%, continued to edge up.
     However, Poloz, in a speech to the Atlantic Provinces Economics Council and
Greater Moncton Chamber of Commerce, New Brunswick, signaled that the BOC still
believes that upward forces remain temporary, explaining 0.8 points of the 2.8%
August rise: 0.5 percentage points were explained by higher gasoline prices, and
0.3 percentage points by the cost of air travel.
     Such factors, he said, should only affect inflation "temporarily."
     --STAYING GRADUAL
     Besides, in a speech otherwise dedicated to advances in digital
technologies, Poloz said the latter "could be giving the economy more room to
grow before inflation pressures emerge."
     Even though Senior Deputy Governor Carolyn Wilkins revealed after the
September 5 policy announcement that the Governing Council discussed whether the
pace of tightening was appropriate given that the economy was operating at
capacity, Poloz' comments Thursday indicated no intention to pick up the pace
despite higher-than-expected inflation rates.
     Still acknowledging uncertainty related to NAFTA and the impact of tighter
mortgage rules in effect since January, Poloz reaffirmed the gradual, data
dependent approach.
     "We will move rates toward a more neutral level gradually," he said,
stressing that uncertainty does not justify "inaction" but that the BOC should
tighten neither too fast nor too slowly.
     And despite the new phase of heightened tensions between U.S. and Canadian
negotiators following President Trump's comments Wednesday pointing to his
distaste for Canadian foreign minister Chrystia Freeland, Poloz took an
optimistic view on the outcome of NAFTA negotiations during a question and
answer session following his speech, noting that both Canada and the U.S. have
"so much" to gain from reaching a deal.
--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com
[TOPICS: M$C$$$]