OTTAWA (Reuters) - The Bank of Canada on Wednesday emphasized the temporary nature of February's high inflation, a figure that has raised market expectations of an interest rate increase.
Paul Jenkins, senior deputy governor at the bank, warned against reading too much into a single number and said the central bank must try to understand the real forces pushing prices higher.
"There are some temporary factors at play on the inflation numbers," Jenkins told Reuters in an interview to mark his retirement from the bank on April 7.
The central bank's measure of core inflation, which is normally considered a gauge of underlying price pressures because it excludes gasoline and other volatile items, rose to 2.1 percent in February, above the bank's 2 percent target.
Much of the price shock came from a huge jump in hotel rates due to the Winter Olympics in Vancouver. But the price gains were widespread and most analysts see inflation persisting at levels that appear incompatible with the bank's record low interest rate of 0.25 percent.
But Jenkins was somewhat more sanguine.
"Just as with any one number on the real GDP side, in the case of inflation one needs to make sure you have a fix on the underlying trends of inflation," he said.
"From that point of view, (it means) looking at the various factors that are currently at play and adding those up again to give a sense of where those inflation trends are headed."
The central bank will update its inflation forecasts on April 22 in a quarterly report. Normally, the report details the outlook on the total consumer price index and core inflation. Jenkins did not say how the bank might strip out the effect on prices of the Olympics.
He said the bank must focus solely on its inflation target as it ponders when to start raising borrowing costs again.
"The challenge is constantly to fold in information as it becomes available into that framework ... There is no one number that you want to react to, its the accumulation of that information," he said.
Reporting by Louise Egan; Editing by Rob Wilson and Janet Guttsman