Canadian inflation likely to stay muted in April

Fri May 11, 2012 4:13pm EDT
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By Louise Egan

OTTAWA (Reuters) - Canadian consumer prices likely remained subdued in April, leaving the annual inflation rate unchanged from March when it dropped to an 18-month low of 1.9 percent, and suggesting price pressures are the least of the Bank of Canada's worries.

Consumers felt the pinch of rising gasoline prices in April - the single biggest driver of the consumer price index - which rose by just over 3 percent in the month, according to analysts' estimates.

But that represents a moderation from April 2011, making the year-over-year inflation rate look softer.

The core inflation rate, which excludes gasoline and other volatile items, is expected to fall to 1.8 percent - the lowest since July - from 1.9 percent.

The numbers are not expected to play a decisive role in the Bank of Canada's judgment on how soon to raise interest rates from their ultra-low 1.0 percent, with domestic growth and the global environment seen weighing more heavily.

The central bank targets 2 percent annual inflation. The average 2.3 percent rate in the first quarter was a notch lower than its April projection and well below the average 2.9 percent seen in 2011. The bank sees second-quarter inflation averaging 2.0 percent.

"The bank is expecting inflation to hang at around 2 percent anyways. Barring major upside surprises in inflation, it's unlikely to affect the policy of the Bank of Canada," said Mazen Issa, macro strategist at TD Securities.

The bank adopted a more hawkish tone in mid-April, noting that inflation and growth were both firmer than it had anticipated, raising market expectations it could raise its key overnight target either late this year or in early 2013.   Continued...