Canadian inflation pressure grows slightly in February

Fri Mar 23, 2012 9:18am EDT
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By Louise Egan

OTTAWA (Reuters) - Higher gasoline and food prices pushed up Canada's annual inflation rate a notch in February, but not high enough to cause the central bank major discomfort as it keeps interest rates near the record lows seen during the worst of the recession.

Annual inflation hit 2.6 percent in the month, up from 2.5 percent in January but slightly below the 2.7 percent rate forecast by analysts in a Reuters poll, according to Statistics Canada data on Friday.

Core inflation, which excludes eight volatile items including gasoline and some food, came in a little hotter than expected at 2.3 percent versus estimates of a 2.2 percent rate.

"There's a little bit more steam here in inflation than the Bank of Canada expected," said Doug Porter, deputy chief economist at BMO Capital Markets, referring to the core rate.

"Is it enough to change the landscape for the bank? I don't think so. But at the margin it is going to get a few more adherents to the view that bank could be hiking sooner rather than later," he said.

Traders continued to see a very slight chance of a rate hike in late 2012, although those bets did increase a bit after the inflation data. Market sentiment is reflected in overnight index swaps, which are priced based on expectations for the central bank's main policy rate.


Graphic on Canada inflation:   Continued...