Canada's annual inflation rate slowed to 1.1 per cent in August, amid smaller increases for housing and gas prices than in the previous month, Statistics Canada said Friday.

The August annual inflation rate was in line with economists' estimates and compared with an increase of 1.3 per cent in July.

Bank of Montreal senior economist Benjamin Reitzes said inflation remains very tame with no signs of a looming pick up.

"Persistent economic slack and lacklustre global growth will likely keep price pressures contained at least well into next year," Reitzes said.

"There's nothing here to push the Bank of Canada off the sidelines any time soon."

The Bank of Canada's core inflation index rose 1.3 per cent for August compared with 1.4 per cent in July, at the low end of the central bank's target range of between one and three per cent.

Bank of Canada governor Stephen Poloz was upbeat about prospects for the Canadian economy earlier this week but noted it should be able to support some growth without stoking inflation as business investment picks up.

The central bank has maintained its key rate at one per cent since September 2010.

Inflation unlikely to rise above 3%

Capital Economics economist David Madani was far more bearish about his outlook for the economy.

Madani said he expects growth in the third quarter to fall well short of the Bank of Canada's July forecast of 3.8 per cent.

"With economic growth likely to remain sluggish through the rest of this year and inflation expectations well anchored, it will be a long time before capacity or wage cost pressures ever threaten inflation above the bank's one per cent to three per cent target range," Madani said.

Statistics Canada said shelter costs in August were up 1.1 per cent from a year earlier as Canadians paid more for rent and natural gas, offset by lower mortgage interest costs compared with last year. The July increase was 1.3 per cent.

Rent prices were up 1.7 per cent year-over-year in August while natural gas costs gained 9.5 per cent. Mortgage interest costs were down 3.6 per cent.

The price of gasoline was also higher, as was the cost of vehicles, however at a slower pace than in July.

Drivers paid 2.2 per cent more for gasoline while passenger vehicle prices were up 0.6 per cent for August. That compared with July's increases of 6.1 per cent and two per cent, respectively.

Prescription medication prices down

Overall, Statistics Canada said prices for seven of the eight components that it tracks were up from a year ago.

Food prices were up one per cent in August, compared with a 0.8 per cent increase in July, while the clothing and footwear index rose 2.3 per cent following a 1.5 per cent increase in the previous month.

The household operations, furnishings and equipment category was up 1.2 per cent in August while the recreation, education and reading category gained 0.3 per cent. Alcohol and tobacco prices were up 1.9 per cent.

That compared with gains of 1.3, 0.5 per cent and 2.1 per cent, respectively, in July.

The health and personal care category was the only one to report lower prices compared with a year ago as the price of prescription medication fell 4.2 per cent. The group fell 1.4 per cent on a year-over-year basis compared with a 0.4 per cent drop in July.

Manitoba saw the largest increase in prices with a year-over-year gain of 2.7 per cent following a three per cent increase in July with higher prices for cigarettes and vehicle registration fees than a year ago.

British Columbia saw prices slip 0.1 per cent compared with a year ago after remaining unchanged in July.