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Canada Inflation

Published by Alex | January 20th 2010 | Views:

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Canada’s inflation accelerated less than economists expected last month, staying below the central bank’s target because of lower costs for mortgage interest, natural gas and clothing. Prices rose 1.3 percent in December from a year ago, and fell 0.3 percent from November, Statistics Canada said today in Ottawa.

Economists predicted annual inflation would speed to 1.6 percent from November’s 1 percent, and that prices would fall 0.1 percent on a monthly basis, according to the median estimates of Bloomberg News surveys.

Bank of Canada Governor Mark Carney yesterday kept his benchmark interest rate at a record low 0.25 percent, and said he plans to keep it there through June unless the outlook for prices veers from his forecast.

The bank also said that “considerable excess supply remains” and inflation won’t return to policy makers’ 2 percent target until the third quarter of next year. “For the Bank of Canada, this report underscores the lack of inflation pressure in the economy,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.

“It gives the bank ammunition to keep interest rates low later into this year.” The Canadian dollar weakened 1.1 percent to C$1.0433 per U.S. dollar at 7:13 a.m. in Toronto, from C$1.0314 yesterday. Price Declines Natural gas costs dropped 31 percent in December from a year ago, while Statistics Canada’s index of mortgage interest cost declined 4.9 percent.

Clothing and footwear costs fell 0.8 percent. The rise in inflation from a year earlier was led by a 26 percent jump in gasoline costs. Prior gasoline-price declines helped drive the inflation rate below zero for four straight months through September, the longest period since 1953.

The so-called core inflation rate, which excludes gasoline and seven other volatile items, was 1.5 percent on an annual basis in December, unchanged from the previous month. On a monthly basis, core inflation fell 0.3 percent. The Bank of Canada said yesterday that core inflation has been “slightly higher than expected in recent months.”

Economists forecast the annual core inflation rate would be 1.7 percent, based on the median of 26 estimates, and fall 0.2 percent on a monthly basis. The inflation rate was 0.3 percent for all of 2009, the lowest since 1994, Statistics Canada said.
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