Canada inflation holds steady in October at 1.2 percent

Fri Nov 23, 2012 9:10am EST
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OTTAWA (Reuters) - Canadian inflation was slightly stronger than expected in October as prices rose for almost all consumer items, but the rate remained well below the central bank's 2 percent target, suggesting interest rate hikes are still a long way off.

Gasoline and electricity prices grew at a slower year-on-year pace than in September while prices for food, air travel and property taxes rose more sharply, Statistics Canada said in a report on Friday.

Annual inflation held steady at 1.2 percent, unchanged from September but above the 1.1 percent forecast by market players. The consumer price index rose 0.2 percent in October from September.

Core inflation, which strips out gasoline and other volatile items, was unchanged from September at 1.3 percent year-on-year. Market players had forecast 1.2 percent core inflation.

With price pressures holding below 2 percent since March, there is little pressure on the Bank of Canada to follow through on its warning that it may need to raise interest rates, a stance that has made it an outlier among major economies.

"It doesn't really change the story - it's really limited inflation pressure in Canada," said Sal Guatieri, senior economist at BMO Capital Markets.

"It just reinforces the view that the Bank of Canada will remain on the sidelines for some time," he said.

Canada's primary securities dealers expect the bank to begin tightening monetary policy in the fourth quarter of next year, according to a Reuters poll last month.

But markets continue to price on a slight chance of a rate cut next year, according to yields on overnight index swaps which trade based on expectations for the policy rate.   Continued...