Canada Inflation Hits 10-month High


Higher gasoline prices pushed Canada's annual inflation rate to a 10-month high in December, but the data is unlikely to knock the Bank of Canada off track in its pledge to hold interest rates steady for some time.

The consumer price index (CPI) slipped 0.3 percent in December from November, Statistics Canada said. But 12-month inflation was 1.3 percent, the highest since 1.4 percent in February 2009, due largely to the base effect of a steep decline in gasoline prices in December 2008. In November, annual inflation was 1.0 percent.

Still, the data was below market expectations, and inflation was in the lower end of the Bank of Canada's target range of 1 percent to 3 percent.

Core CPI, closely watched by the central bank, also came in slightly weaker than expected with a decline of 0.3 percent in the month for an annual rate of 1.5 percent, below the market forecast of 1.7 percent.

The central bank noted that core inflation had been slightly higher than it expected in recent months -- it was 1.5 percent in November and 1.8 percent in October. But the bank showed little concern about the trend and said it expected overall CPI and core CPI would reach its 2 percent target in the third quarter of 2011.

Gasoline prices explained much of the 12-month rise in the CPI in December for the second straight month, Statscan said. Gasoline jumped 25.6 percent from a year earlier, and energy prices overall climbed 5.9 percent.

Six of the eight CPI components rose in the 12 months, with the exception of shelter, clothing and footwear.

On a monthly basis, clothing discounts and household operations and furnishings contributed most of the downward pressure. The clothing and footwear sector reported a 4.7 percent decrease in prices.


TradingEconomics.com, Reuters
1/20/2010 10:15:06 AM