Canada inflation edges up, doubts cast on rate move

Wed May 21, 2008 3:36pm EDT
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By Louise Egan

OTTAWA (Reuters) - Canada's annual inflation rate skipped above expectations to 1.7 percent in April, because of double-digit gasoline price hikes, casting doubt on the timing of the Bank of Canada's next interest rate cut.

The jump in the April consumer price index, reported by Statistics Canada on Wednesday, was the first upturn in five months and topped the 1.4 percent forecast by market analysts. Month-on-month, the rate was up 0.8 percent from March.

The surprisingly high number pushed the Canadian dollar to a two-month high and prompted Prime Minister Stephen Harper to downplay the price pressures.

Statistics Canada also reported on Wednesday that the composite leading indicator inched up 0.1 percent in April, suggesting a slight pickup in economic activity after two sluggish months.

The core inflation rate, which strips out gasoline and a number of other volatile items, also quickened more than anticipated in April. Core CPI rose 0.3 percent for a 1.5 percent annual rate. That compares with a median analyst forecast of 1.3 percent.

Some economists said the numbers will force the Bank of Canada to pause in its rate-cutting cycle next month.

"Still not alarming, but I think it puts any discussion of a move in June off the table and leaves open the prospect for further easing later if the economy warrants," said Craig Wright, chief economist at Royal Bank of Canada.

Others think the bank should still reduce interest rates at the first opportunity.   Continued...