WRAPUP 1-Canada inflation rate slows, puts rate-hike bias in question

Fri Dec 21, 2012 9:22am EST
 
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* November rate slows to 0.8 pct from 1.2 pct in October

* Gas prices post smaller year-over-year increase

By David Ljunggren

OTTAWA, Dec 21 (Reuters) - Canada's annual inflation rate fell to a three-year low of 0.8 percent in November, raising questions about the Bank of Canada's stubborn insistence that the next move in interest rates will be an increase.

The annual rate, reported by Statistics Canada on Friday, is far below the Bank of Canada's 2.0 percent target. Analysts had expected annual inflation of 1.1 percent, down from 1.2 percent in October.

"I suspect they (the Bank of Canada) knew by a little while ago that they had overestimated growth, and I don't think there's going to be any sudden changes, but it will raise the question again whether they'll soon back away from their tightening bias," said Doug Porter, deputy chief economist at Bank of Montreal.

The Bank of Canada has repeatedly said it will eventually need to raise interest rates despite clear signs that the economy is slowing. It has held its overnight lending rate at 1 percent since September of 2010, the longest period of bank inactivity on rates since the early 1950s.

"There's no pressure on the Bank of Canada to take interest rates higher for the foreseeable future," said David Tulk, chief Canada macroeconomic strategist at TD Securities.   Continued...