UPDATE 3-Canada December inflation holds at 3-year low of 0.8 pct

Fri Jan 25, 2013 10:02am EST
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* No pressure for rate hikes

* Inflation rate well below central bank's target

* Canadian dollar sinks to 6-month low

By David Ljunggren

OTTAWA, Jan 25 (Reuters) - Canada's annual inflation rate in December remained at a three-year low of 0.8 percent, emphasizing how little pressure there is on the Bank of Canada to raise interest rates, Statistics Canada data indicated on Friday.

The rate is the lowest since 0.1 percent recorded in October 2009 and is far below the Bank of Canada's 2.0 percent target. Market analysts had expected the annual rate to increase to 1.2 percent from November's 0.8 percent.

"I think it just reinforces the view that the Bank is locked on the sidelines for a lengthy spell here," said Doug Porter, deputy chief economist at BMO Capital Markets.

Consumer prices in December fell by 0.6 percent from November, which Porter attributed to seasonal discounting and lower prices for gasoline.

The Bank of Canada on Wednesday cited soft inflation as one of the reasons why a rate hike would be less imminent than it has previously anticipated. A Reuters poll conducted later the same day showed most of Canada's primary dealers expect the next rate hike in the first quarter of 2014.   Continued...