Comeback rolls on as price pressures emerge

Fri Mar 19, 2010 10:57am EDT
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By Louise Egan

OTTAWA (Reuters) - Canadian core inflation stayed unexpectedly high in February and retailers posted solid sales gains in January, according to reports on Friday that helped push the Canadian dollar closer to parity with the greenback.

The data shows the economy is heating up, putting pressure on the Bank of Canada to raise interest rates from record lows although markets still expect the bank to follow through on its pledge to sit on the sidelines on rates until July.

"The numbers were much stronger than expected across the board," said George Davis, chief technical strategist at RBC Capital Markets, referring to the inflation data.

"That's going to create a lot of chatter among people in the market in terms of what the bank will be assessing going forward," he said.

Core inflation, which excludes volatile items such as gasoline, was 2.1 percent year-on-year in February, up from 2.0 percent in January, pressured by vehicle prices as rebates were lifted and a one-time increase in hotel rates due to the Vancouver Winter Olympics.

It was the first time the core rate broke through the 2 percent mark since December 2008. Core CPI jumped 0.7 percent from January.

Markets had predicted the core rate would ease to 1.7 percent year-on-year and rise 0.3 percent from January.

Retail sales beat expectations to increase 0.7 percent in January as Canadians bought home renovations supplies to take advantage of a temporary tax credit in its last month of existence.   Continued...