Bank of Canada sees inflation above target range

Mon May 16, 2011 1:38pm EDT
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OTTAWA (Reuters) - Canadian inflation will remain above 3 percent for now, surpassing the central bank's target range, Bank of Canada Governor Mark Carney said on Monday, but he gave no further clues on the timing of possible rate hikes.

Sharp increases in energy prices and added provincial sales taxes were responsible, he said. The central bank still sees total inflation declining to 2 percent and a "subdued" core inflation rising to that level by mid-2012, as projected in April.

In April, the bank had predicted inflation would peak at 3 percent in the second quarter, but Carney pointed out it had already exceeded that level in March and said it would stay there "in the short term." The bank aims to keep inflation at the midpoint of its target range of 1 to 3 percent.

Carney said economic data since April has generally supported the outlook laid out by the bank.

"Carney didn't break new ground on monetary policy," said Avery Shenfeld, economist with CIBC World Markets.

"Nothing very market moving in this to us, although others may have anticipated something new on the hawkish side," he said.

Carney repeated an April statement that the bank's decision so far to leave interest rates at 1 percent "leaves considerable monetary stimulus in place, consistent with achieving the 2 percent inflation target in an environment of material excess supply in Canada."

The bank became the first in the Group of Seven advanced economies to begin raising interest rates last year, increasing borrowing costs three times. It has held them steady since September and a majority of primary securities dealers expect it to resume tightening in July.

Carney will comment further in a news conference scheduled for about 2 p.m. on Monday.   Continued...

<p>Bank of Canada Governor Mark Carney leaves his office for a news conference upon the release of the Monetary Policy Report in Ottawa January 19, 2011. REUTERS/Chris Wattie</p>