UPDATE 2-Canada inflation jumps in October, pressuring the central bank

Fri Nov 21, 2014 10:52am EST
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By Leah Schnurr

OTTAWA Nov 21 (Reuters) - Canada's annual inflation rate jumped last month as prices for shelter and food rose, putting pressure on the Bank of Canada's stance that interest rates will remain low for some time.

Year-on-year inflation rose to 2.4 percent in October, Statistics Canada data showed on Friday. That was the highest level since June, surpassing economists' expectations for a slight rise to 2.1 percent from September's 2.0 percent.

The core inflation rate, which is closely watched by the central bank and strips out volatile items, rose to 2.3 percent, also topping forecasts. The figures sent the Canadian dollar to a three-week high against the greenback.

The Bank of Canada has shrugged off recent firmer inflation, saying the strength is likely temporary. Analysts said it will be difficult for the central bank to look past the numbers if the trend higher continues.

"With this unexpected pressure on the inflation side, it raises the probability of the Bank of Canada moving into a tightening mode," said Paul Ferley, assistant chief economist at Royal Bank of Canada.

Prices in all of the major components of the consumer price index rose, with the cost of shelter up 2.8 percent in the last year, pushed higher by a 20.1 percent jump in natural gas prices. Food prices rose 2.8 percent.

"The increase in prices is pretty widespread, so it's going to be difficult for the Bank of Canada to easily dismiss these higher inflation numbers," said Sal Guatieri, senior economist at BMO Capital Markets.   Continued...