Canada December annual inflation rises less than expected as food falls

Fri Jan 20, 2017 9:21am EST
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By Leah Schnurr

OTTAWA (Reuters) - Canada's annual inflation rate rose less than expected in December as cheaper food offset higher gasoline prices, leaving inflation below the Bank of Canada's target and reinforcing expectations the central bank will be on hold for some time.

A small retail sales gain in November was also underwhelming compared to economists' forecasts and the releases sent the Canadian dollar to a fresh two-week low.

The annual inflation rate rose to 1.5 percent, Statistics Canada said on Friday, short of expectations for 1.7 percent.

Gasoline prices jumped 5.5 percent. But annual food prices fell for the third consecutive month, down 1.3 percent as Canadians paid less for fresh fruit and vegetables.

Two of the three new measures of core inflation established by the Bank of Canada showed underlying inflation was closer to its 2 percent target.

The central bank said earlier this week that an interest rate cut remained possible if the risks from policy uncertainty in the United States materialize, though most economists expect the bank to hold steady into 2018.

The data was unlikely to change the bank's view of where the economy is, said Doug Porter, chief economist at BMO Capital Markets.

"I think it confirms ... that there's still a long way to go," Porter said. "There's still lots of slack in the economy and as a result, core inflation will remain relatively subdued."   Continued...

A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015.    REUTERS/Mark Blinch