Canada April inflation sparks more rate-hike talk

Fri May 18, 2012 11:24am EDT
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By Randall Palmer

OTTAWA (Reuters) - Inflation in Canada was slightly higher than expected in April, providing the Bank of Canada with more reason, if the European crisis doesn't undermine the economy, to launch the interest-rate hike it has hinted at recently.

On an annual basis the overall inflation rate rose to 2.0 percent in April from 1.9 percent in March, Statistics Canada said on Friday. The core rate, which excludes volatile items, climbed to 2.1 percent from 1.9 percent.

"From a strictly domestic standpoint, I think it does advance the case for the bank raising rates," said BMO Capital Markets deputy chief economist Doug Porter.

However, he said that the euro-zone debt crisis is an important caveat: "Having said that, the bank also has to, of course, deal with the reality of a further flare-up in the European situation and I think that's going to overwhelm domestic considerations."

The median forecast in a Reuters survey of analysts had been for both inflation measures to stay at 1.9 percent. Only five of 24 analysts had expected the overall rate to rise, and none had foreseen a core rate as high as 2.1 percent.

Though several data points have bolstered the case for the central bank to raise rates, recent economic figure have not all been positive.

The latest reports for manufacturing, jobs, trade, housing and wholesale trade have been strong, while February gross domestic product and retail trade were weak.

In the past month, the bank has said several times it may have to withdraw stimulus from the economy.   Continued...