The Bank of Canada is running out of reasons to raise interest rates anytime soon.

Consumer prices rose 1.2 per cent in August from a year earlier, Statistics Canada reported Friday, compared with 1.3 per cent in July. That's comfortably below the central bank's target of 2 per cent. At the same time, wholesalers are struggling. Statscan said in a separate report that wholesale trade plunged 0.6 per cent in July, to $49.5-billion. Most Bay Street analysts were expecting a small gain.

These figures imply Canada's economy is sputtering. The wholesale numbers, combined with weak factory data last week, suggest third quarter growth will be weak. And little economic growth suggests little inflation. Krishen Rangasamy, a senior economist at National Bank Financial in Montreal, says third-quarter inflation is running well behind the pace that the Bank of Canada was expecting: 1.1 per cent for the headline number, compared with the central bank's current estimate of 1.2 per cent; and, more importantly, core inflation, which deducts volatile food and energy prices, is tracking 1.4 per cent v. the Bank of Canada's estimate of 1.9 per cent.

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"Rate hikes in Canada remain at least a year away," Robert Kavcic, an economist at BMO Nesbitt Burns in Toronto, advised his clients Friday.

Most, if not all, economists who watch the Bank of Canada share Mr. Kavcic's view. Canada's housing bubble is deflating, weak global demand is hurting exports and commodity prices, and the Federal Reserve's decision this month to deploy a third asset-purchase program is putting upward pressure on the Canadian dollar as international investors seek better returns than can be had in the United States. All these factors argue against higher interest rates in Canada.

The debate around Canadian monetary policy now will shift to whether the Bank of Canada will back away from its rhetoric about raising interest rates. Also, the few voices calling for an interest-rate cut will no doubt become louder.

Both seem unlikely at this point. Inflation is cooler than policy makers were expecting, but not so far out of line to prompt a marked shift in stance. The central bank's forecasting models may produce a reason to leave rates on hold for a bit longer than planned. But Canada's economy, even though it is sputtering, still is edging closer to its full production capacity, and wages are growing faster than prices. Those factors are inflationary and policy makers will be determined to stand on guard.

"The Bank of Canada is likely to keep its tightening bias for some time, but unlikely to act until the middle of next year," Charles St-Arnaud, a former Bank of Canada economist who now is an analyst at Nomura in New York.

There is a more abstract reason the Bank of Canada could be inclined to remain biased toward higher interest rates. It's only beginning, but the Fed's decision last week to embark on QE3 seems to be testing the market's confidence that central banks are serious about containing inflation. Pimco's Mohamed El-Erian, writing on the Financial Times' website, called it a "reverse Volcker moment," a reference to former Fed chairman Paul Volcker, who induced a recession with double-digit interest rates to stamp out inflation in the 1970s and early 1980s.

The central banking fraternity will be loath to let Mr. El-Erian's thesis catch on. Bank of Canada Governor Mark Carney could push back by making sure the world is well aware of his intense discomfort with ultra-loose monetary policy.