Canada annual inflation at 15-year low in May

Thu Jun 18, 2009 9:14am EDT
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By Louise Egan

OTTAWA (Reuters) - Canada's annual inflation rate fell to a 15-year low of 0.1 percent in May as cheaper gasoline and cars were partially offset by rising food costs, Statistics Canada said on Thursday.

But even though the year-on-year price gain was the lowest since November 1994, it was stronger than the drop of 0.2 percent expected by analysts. A 0.7 percent jump in prices in the month of May suggested price pressures that could be of concern to the Bank of Canada if they persist.

The core rate of inflation, which excludes volatile items and is used by the central bank to track underlying price trends, also quickened more than expected to 0.4 percent on the month and rose to 2 percent annually.

Market reaction to the inflation numbers was muted and economists played down any lurking threat from inflation for the Bank of Canada.

"It did come out stronger than expected across the board. But at the same time when we look at the inflation level at 2 percent they're right at the midpoint of the Bank of Canada's target range," said George Davis, chief technical strategist at RBC Capital Markets.

"From that perspective we're still not seeing a lot of concern or threats from the inflationary side of the equation," he said.

Charmaine Buskas, senior economics strategist at TD Securities, expects the Bank of Canada to shrug off the higher-than-expected numbers.

"This is unlikely to sway the Bank of Canada away from its stance that it will keep monetary policy on hold until the middle of next year," she said.   Continued...