Inflation eases, clearing way for rate cuts

Fri Jan 25, 2008 10:44am EST
 
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By Louise Egan

OTTAWA (Reuters) - Canada's core inflation rate, which helps guide central bank interest rate decisions, unexpectedly slowed to a two-year low of 1.5 percent in December, leaving the door open for further rate cuts.

Core inflation, which excludes volatile items like gasoline and fresh produce, eased from 1.6 percent in November after prices fell 0.3 percent in the final month of the year.

Retailers came under pressure late last year to slash prices to lure back shoppers who were taking advantage of the stronger Canadian dollar by crossing the border to shop in U.S. malls.

The annual core rate matched that of December 2005. The last time it was lower was in July 2005 at 1.3 percent.

Analysts had forecast a 0.1 percent monthly decline in consumer prices and an annual core rate of 1.7 percent.

Total year-on-year inflation also eased in December, sliding to 2.4 percent from 2.5 percent in November. Prices edged up 0.1 percent on the month, in line with forecasts.

A moderation of the increase in gasoline prices and a decline in motor vehicle prices explained the softer number, Statscan said.

The Canadian dollar fell after the data to C$1.0094 to the U.S. dollar, or 99.07 U.S. cents, from around C$1.0061 to the U.S. dollar, or 99.39 U.S. cents. Bonds rose slightly.   Continued...