Canadian inflation eases in June on energy costs

Fri Jul 23, 2010 2:29pm EDT
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By Ka Yan Ng

OTTAWA (Reuters) - Moderating energy prices helped slow Canada's annual inflation rate in June from May, suggesting the central bank has breathing room to take a gradual approach to future interest rate hikes.

The consumer price index dipped 0.1 percent in the month for an annual rate of 1.0 percent, Statistics Canada said on Friday. It was the first month-on-month decline for total CPI since December 2009.

The annual rate was in line with analyst expectations. In May, consumer prices climbed 0.3 percent in the month for an annual rate of 1.4 percent.

"At the margin, it could encourage the Bank of Canada to go very slow, as far as raising interest rates," said Sal Guatieri, senior economist at BMO Capital Markets. He said deflation in Canada is much less a risk than in the United States.

The data arrived on a week that the Bank of Canada raised interest rates for a second time in as many months and cautioned of uncertainty in the global recovery, cutting its domestic growth outlook but keeping its inflation view unchanged.

The central bank said explicitly for the first time in its quarterly Monetary Policy Report that its outlook assumes "a gradual reduction in monetary stimulus consistent with achieving the inflation target."


Sebastien Lavoie, assistant chief economist at Laurentian Bank Securities, said the data keeps Bank of Canada Governor Mark Carney in the "best of both worlds."   Continued...