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OTTAWA (Reuters) - Canada's economic recovery remained choppy in the fourth quarter, according to data that revealed a lack of inflationary pressure in December and a still-struggling manufacturing sector in November.
Higher gasoline prices pushed the annual inflation rate to a 10-month high in December, Statistics Canada said on Wednesday. But the rate was below market forecasts and at the lower end of the Bank of Canada's target range of 1 percent to 3 percent.
In November, manufacturing sales disappointed with a scant 0.1 percent advance, compared with expectations for a 0.6 percent increase.
The figures are unlikely to change the central bank's pledge to keep interest rates at record lows until at least the end of June this year.
"Today's data is largely in keeping with the somewhat saw-toothed nature of this recovery that has dished out its fair share of economic disappointment on a month to month basis," said Stewart Hall, markets strategist with HSBC Canada.
Annual inflation was at 1.3 percent, its highest level since 1.4 percent in February 2009, due largely to the effect of a steep decline in gasoline prices in December 2008. In November, annual inflation was 1.0 percent.
The consumer price index slipped 0.3 percent in December from November. Analysts had forecast a monthly decline of 0.2 percent in the CPI and a 12-month inflation rate of 1.5 percent.
"The weakness in the data takes any kind of pressure off the Bank of Canada to potentially act sooner rather than later, so I think from a shorter term perspective we might see a little more Canadian dollar weakness in reaction to that," said George Davis, chief technical strategist at RBC Capital.
The Canadian dollar weakened to a session low of C$1.0435 to the U.S. dollar, or 95.83 U.S. cents, from C$1.0388, or 96.26 U.S. cents just before the release. It later slid further to C$1.0471, or 95.50 U.S. cents.
Core CPI, closely watched by the central bank, also came in slightly lower than expected with a decline of 0.3 percent in the month for an annual rate of 1.5 percent, below the market forecast of 1.7 percent.
Doug Porter, deputy chief economist at BMO Capital Markets, called the report "benign."
"The key here is that both headline and core prices fell on the month. Even in seasonally adjusted terms prices dipped, and compared with most of the rest of the industrialized world, Canada's inflation rate looks quite subdued," he said.
Manufacturing sales advanced less than expected in November from October as weakness in the automotive and aerospace sectors offset gains in most other industries.
The central bank noted this week that "considerable excess supply" remains in the economy, suggesting it was not worried about inflation just yet. The bank will provide more details on its outlook in a quarterly report on Thursday.
Figures released on Tuesday showed the composite leading indicator jumped by 1.5 percent in December -- the largest month-on-month increase for almost 27 years and much greater than expected.
One of the main reasons was the red-hot housing market, fueled by record low interest rates. The Bank of Canada says it is not concerned at this point about a possible housing bubble.
Additional reporting by David Ljunggren in Ottawa, Euan Rocha, Scott Anderson and Claire Sibonney in Toronto; editing by Rob Wilson