Gasoline prices cool Canada inflation; cutting pressure for rate move

Fri Dec 19, 2014 10:36am EST
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By Leah Schnurr

OTTAWA (Reuters) - Tumbling gasoline prices cooled inflation in Canada last month, providing the country's central bank with plenty of room to keep interest rates at their current low levels for some time yet.

The annualized inflation rate pulled back to 2.0 percent from October's strong 2.4 percent, data from Statistics Canada showed on Friday. That was short of economists' forecasts for 2.2 percent.

A 5.9 percent year-on-year drop in gasoline prices was the main driver of the pullback. On a monthly basis, gasoline prices were at their lowest level since February 2011, falling alongside crude oil prices.

Core inflation, which strips out volatile items and is closely watched by the Bank of Canada, fell back to 2.1 percent from 2.3 percent, short of expectations for a rise to 2.4 percent.

November's slowdown brought the inflation rate smack in line with the Bank of Canada's target of 2 percent. While inflation has run hotter than the bank had anticipated this year, the bank has said repeatedly it expects that to be temporary.

The bank's benchmark rate is 1 percent, and it is not expected to raise rates until the fourth quarter of next year, according to the most recent Reuters poll. [CA/POLL]

"Certainly this report will keep, I think, the Bank of Canada in wait-and-see mode," said Paul Ferley, assistant chief economist at Royal Bank of Canada.

"It's certainly not going to suggest advancing any tightening by the Bank of Canada," he said. "If anything, it may sort of argue for the bank further delaying tightening interest rates."   Continued...

People refuel their vehicles at a Petro-Canada gas station in Toronto, June 23, 2014. REUTERS/Mark Blinch