Canada inflation eases, no pressure for rate hike
By Louise Egan
OTTAWA (Reuters) - Inflation in Canada eased in February, bucking the trend in many other countries and removing some pressure from the Bank of Canada to start raising interest rates again soon.
Statistics Canada said on Friday that core inflation, which excludes gasoline and other volatile items, slipped to 0.9 percent year-on-year in February. That was the lowest level since Statscan began recording 12-month rates in January 1985 and is explained mainly by a plunge in hotel rates compared with February 2010, when they spiked during the Winter Olympics in Vancouver.
Overall consumer prices rose 0.3 percent in the month, the same increase as the previous month, for a 2.2 percent annual inflation rate. That was down from 2.3 percent in January and just below the consensus forecast of 2.3 percent.
The docile price environment gives the central bank more reason to stay put on rates for now, but analysts said strong domestic growth and an expected easing of global tensions will eventually pressure prices and prompt a rate increase this year.
"I think that this is one month of low inflation at the core measure. It doesn't change the world as we see it," said Dawn Desjardins, assistant chief economist at Royal Bank of Canada.
"So we still think the bank will be back in rate-hike mode in the months ahead, but not April," she said.
The Bank of Canada, which targets 2 percent inflation, has kept its benchmark rate on hold at 1.0 percent since September, pending more evidence of a sustained recovery.
Market players are divided in their views on the timing of the next hike. A Reuters poll in February showed they thought May 31 was the most likely bet, and that the bank was unlikely to move at its next decision date on April 12. Continued...