Inflation jumps to Bank of Canada's 2 percent target in April

Fri May 23, 2014 9:11am EDT
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By Randall Palmer

OTTAWA (Reuters) - - Canada's annual inflation rate rose to the central bank's 2 percent target in April for the first time in two years, Statistics Canada said on Friday, further dampening talk of a cut in interest rates.

The jump from 1.5 percent in March was exactly as expected in a Reuters survey of analysts, as was the 0.3 percent monthly rise in prices from March.

Energy prices rose 2.4 percent on the month, with natural gas jumping a further 8.2 percent after a 10.9 percent hike in March and gasoline up 2.1 percent. The fact that the 0.2 percent monthly price decline in April 2013 no longer figured in the calculations also boosted the annual rate.

Bank of Canada Governor Stephen Poloz has flagged low inflation as one of the biggest risks facing the economy and has insisted a rate cut was as likely as a rate hike, but Royal Bank of Canada strategist Mark Chandler said the central bank would have to tone down the downside risks.

"I think the tone of it will change," he said.

"They're not going to make a big change because they'll have to wait for the next forecast, which will be the following MPR (Monetary Policy Report) in July. So, it'll be a subtle shift, but they should start to talk about more balanced risks."

Core inflation, which helps guide the Bank of Canada since it excludes natural gas, gasoline, fruit and vegetables and other volatile items, edged up to 1.4 percent in April from 1.3 percent in March, with prices rising 0.2 percent on the month. Both figures again matched the median forecasts in a Reuters survey.

The Bank of Canada, which tries to keep overall inflation in the range of 1 to 3 percent, said last month it expected inflation to be at 2 percent on a sustained basis starting in the first quarter of 2015.   Continued...

Prices are displayed for oranges at a store in Atawapiskat, Ontario, December 17, 2011. REUTERS/Frank Gunn/Pool