Canada inflation surges unexpectedly

Thu Mar 19, 2009 7:56am EDT
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By Louise Egan

OTTAWA (Reuters) - Canada's annual inflation rate surged unexpectedly in February on higher food and shelter costs, but the Bank of Canada is expected to ignore the price pressures as it ponders whether to cut interest rates to fresh historic lows.

Statistics Canada said annual inflation jumped to 1.4 percent from 1.1 percent in January despite declines in gasoline and vehicles prices compared with a year earlier.

Compared with January, gasoline prices spiked and automobile prices stabilized, leading to the first month-on-month rise in the consumer price index since last September. The CPI jumped 0.7 percent from January, more than double the 0.3 percent rise analysts had forecast.

The Canadian dollar briefly strengthened after the report before falling back.

Economists said the rise in inflation would likely be short-lived and would do little to take the central bank's focus away from an economy in full recession.

"The CPI numbers are higher than expected, but ultimately, with the slack that's developing in the Canadian economy, we do think that prices will ultimately trend lower," said Charmaine Buskas, senior economists strategist at TD Securities.

"It doesn't really change the view that the Bank of Canada is probably going to be looking at different measures to support the economy," she said.

The Bank of Canada, which targets 2 percent inflation, cut its benchmark interest rate earlier this month to an all-time low of 0.5 percent and has signaled it may move beyond rate cuts to other forms of easing to pull the economy out of a recession.   Continued...

<p>A customer shops at Japanese retailer Aeon Co's Jusco supermarket in Koshigaya, north of Tokyo November 30, 2008. REUTERS/Stringer</p>