UPDATE 3-Canada inflation jumps, rate change still seen far off

Wed Mar 27, 2013 11:02am EDT
 
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* Gas, auto prices push inflation rate up from 0.5 percent
    * Monthly inflation posts greatest increase in 22 years


    By David Ljunggren
    OTTAWA, March 27 (Reuters) - Canada's annual inflation rate
jumped more than expected in February, but analysts said the
spike was unlikely to pressure the Bank of Canada to raise
interest rates any time soon.
    The year-on-year rate rose to 1.2 percent from a
three-year-low of 0.5 percent in January on higher gas and auto
prices, Statistics Canada said on Wednesday.
    That's still well below the mid point of the Bank of
Canada's 1.0 to 3.0 percent target range.
    The central bank has said it expects to raise interest rates
one day, despite still-low year-on-year inflation. But the time
frame for a possible rate hike has kept stretching out as
domestic and global economies have stumbled.         
     
   
    "There will be a short-lived pop in the currency, but I
don't think it is going to make a fundamental change in the
bank's outlook," said Doug Porter, chief economist at BMO
Capital Markets. "I don't think this advances the timetable on
Bank of Canada rate hikes."
    Analysts surveyed by Reuters in late February didn't expect
any move by the central bank before next year. 
    Monthly inflation jumped to 1.2 percent, the steepest
month-on-month jump in prices since January 1991, when the
federal government introduced a goods and services tax and
prices were also up 1.2 percent on the month.
    Seven of eight components in the consumer price index were
higher in February, with transportation prices - including gas
prices - up particularly steeply.
    "Anytime you get a monthly rise of more than one percent in
the headline is huge. Of course we've got to put in the context
that we've just come off a period of remarkable calm in Canadian
inflation and this looks to be quite the payback," said Porter.
    
    GAS, VEHICLE PRICES UP
    The data helped briefly push the Canadian dollar higher
against the U.S. dollar. It touched a session high of 
C$1.0155 versus the U.S. dollar, or 98.47 U.S. cents, up from
C$1.0177, or 98.26 U.S. cents, immediately before the data.
 
    "Anyone that is still contemplating rate cuts will have to
revisit that with today's stronger than expected number," said
Sebastien Lavoie, economist at Laurentian Bank. "But we have to
put that in context and realize that previous CPI numbers over
the last few months were quite tame."
    Gas prices advanced 3.9 percent year over year in February
after dropping 1.8 percent in the 12 months to January. February
gas prices rose by 8.4 percent from January, the largest
month-on-month increase since the 8.8 percent seen in May 2008.
    The cost of passenger vehicles rose by 2.5 percent in the 12
months to February, when the number of manufacturers' rebates
dropped, after falling 0.8 percent in the year to January.
    The Bank of Canada's closely-watched core rate, which strips
out prices of more volatile items such as energy and some
foodstuffs, rose 1.4 percent in the 12 months to February
following a 1.0 percent year-on-year advance in January.
    The bank softened its stance on the need for interest rate
hikes earlier this month, saying it was likely to hold its
benchmark rate steady for "a period of time" given slack in the
economy and tepid growth. 
    The central bank's overnight lending target has been at a
near-record low of 1.0 percent since September 2010.
    "When you are looking at the annual growth in prices, we are
back in the target range of the Bank of Canada. This was
expected. The return to target is maybe earlier than expected,
but it was expected quite soon," said Benoit Durocher, a senior
economist at Desjardins.
    "The inflation pressure should stay very low in the coming
months. For the Bank of Canada, it doesn't change anything."