CPI ebbs but annual inflation at 5-year high

Tue Sep 23, 2008 7:46am EDT
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By Louise Egan

OTTAWA (Reuters) - Falling gasoline costs provided some relief to Canadians in August, knocking down consumer prices for the first time since January but annual inflation stayed at a five-year high, likely prompting the Bank of Canada to keep interest rates on hold.

The consumer price index dipped 0.2 percent in the month thanks to a 6.6 percent slide in gasoline from record highs, Statistics Canada said on Tuesday. But inflation sped to 3.5 percent on the year from 3.4 percent in July, its highest since March 2003 as energy prices remained sharply above 2007 levels.

The figures were in line with market forecasts.

But core inflation, which excludes several volatile items like gasoline and is the Bank of Canada's preferred gage of underlying price trends, rose more than expected at 0.3 percent in the month and 1.7 percent year-over-year.

Analysts had expected a monthly rise of 0.1 percent and an annual rate of 1.6 percent, according to median forecasts in a Reuters poll.

"I think the real eye-opener here is core inflation," said Doug Porter, deputy chief economist at BMO Capital Markets.

"Overall the report isn't a big disappointment but it must be mildly troubling for the Bank of Canada," he said.

The Canadian dollar strengthened after the move, moving to C$1.0342 to the U.S. dollar, or 96.69 U.S. cents, from a pre-data level around C$1.0338 to the U.S. dollar, or 96.73 U.S. cents.   Continued...