Tame Canada inflation indicates no rush for rate hike

Fri Mar 24, 2017 9:25am EDT
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By David Ljunggren

OTTAWA (Reuters) - Canada's annual inflation hit the central bank's 2.0 percent target in February for the second month in a row, but closely watched core measures remained tame, indicating little pressure for a rate hike.

Analysts in a Reuters poll had expected inflation to remain at 2.1 percent. The last time it stayed at 2.0 percent or higher for two consecutive months was October and November 2014, Statistics Canada said on Friday.

That said, all three measures that the Bank of Canada established late last year showed core inflation below 2.0 percent.

"They've still got this very stable inflation backdrop as an ace up their sleeve, which suggests there's no rush for the bank to move," said BMO Capital Markets chief economist Doug Porter.

The Canadian dollar weakened to C$1.3385 to the U.S. dollar, or 74.71 U.S. cents, from C$1.3354, or 74.88 U.S. cents before the data was released.

The Bank of Canada cut rates twice in 2015 as lower oil prices hit growth, and it has left them at 0.5 percent since then. Economists largely expect the next move will be a hike in the second quarter of 2018.

The annual inflation rate dipped in part because consumers paid 2.3 percent less for food and 2.2 percent less for telephone services than in February 2016.

Gasoline prices, the main reason for a recent spike in inflation, jumped 23.1 percent from a year earlier. Once they were stripped out, though, year-on-year inflation was only 1.3 percent.   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