Inflation rate hits 14-year low in April

Wed May 20, 2009 10:55am EDT
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By David Ljunggren

OTTAWA (Reuters) - Canada's annual inflation rate in April dropped to a 14-year low of just 0.4 percent, a move analysts said meant the Bank of Canada would be in no rush to raise record-low interest rates.

The rate dropped from 1.2 percent in March on lower energy prices, Statistics Canada said on Wednesday.

Analysts had on average expected an annual rate of 0.6 percent. April's figure was the lowest since the 0.2 percent recorded in December 1994, when taxes on tobacco products were cut sharply as part of a campaign to fight smuggling.

The central bank last month cut its benchmark interest rate to 0.25 percent and promised to keep it there until mid-2010 as long as inflation remained tame.

"There is still a good deal of slack that has built up in the Canadian economy and that compels us to think that the Bank of Canada has good support for their commitment to keep rates steady for the next several quarters," said Charmaine Buskas, a senior economics strategist at TD Securities.

The Canadian dollar firmed following the data and by 8:30 a.m. was at C$1.1488, or 87.05 U.S. cents, from around C$1.1553, or 86.56 U.S. cents.

Statscan said the drop in the annual rate reflected a decrease of 17.5 percent in natural gas prices from April 2008 to April 2009. Gasoline prices fell 24.7 percent in the same 12-month period.

"This is slowing more aggressively in line with the Bank of Canada's expectations than was previously the case. That's supportive of their signal to the markets that they're going to keep rates low for a very long period of time," said Scotia Capital economist Derek Holt.   Continued...

<p>Canadian one dollar coins, also known as loonies, are displayed in Montreal, September 19, 2007. REUTERS/Christinne Muschi</p>