PREVIEW-Higher Canada inflation in June may not worry BoC

Fri Jul 13, 2012 3:56pm EDT
 
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TORONTO (Reuters) - Canadian inflation likely picked up to an annual rate of 1.8 percent in June from 1.2 percent in May, but the data is unlikely to worry the Bank of Canada given it reflects big auto and clothing discounting seen a year before.

The core inflation rate, which excludes gasoline and other volatile items, is seen rising to 2.3 percent from 1.8 percent, according to the median forecast of analysts polled by Reuters.

If accurate, the headline figure would stay near the middle of the Bank of Canada's 1-3 percent inflation control range, while the core number would move back above the central bank's 2 percent inflation target.

"We would not be concerned with an acceleration in core inflation to an above-target level that matches the highest recorded since late 2008," Credit Suisse analyst Jonathan Basile said in a note to clients.

"The core outcome should be driven mainly by base effects, especially in prices for autos and clothing not posting seasonal June declines as large as last year."

On a month-to-month basis, analysts expect to see the consumer price index fall 0.2 percent, largely reflecting a drop in gasoline prices. The core rate is seen falling 0.1 percent on the month.

In a statement accompanying its June 5 decision to hold interest rates steady at 1 percent, the Bank of Canada warned inflation would come in a little weaker than it had anticipated in its April forecasts because of cheaper gas prices.

"The weakness in commodity prices should persist in the coming months, which will continue to weigh on headline inflation, Mazen Issa, Canada macro strategist at TD Securities, said in a research note.

Canadian inflation unexpectedly fell to its lowest level in nearly two years in May, due in part to lower fuel prices.   Continued...