Inflation hits 8-year high, pressures Bank of Canada
By Randall Palmer
OTTAWA (Reuters) - Canadian inflation rose to its highest level in more than eight years in May, boosting the Canadian dollar and raising the prospect the central bank will raise interest rates sooner than previously expected.
Annual inflation hit 3.7 percent, well above expectations and far above the Bank of Canada's 2.0 percent target, according to Statistics Canada data on Wednesday.
Gasoline was the lead factor, but the core inflation that the central bank follows closely also rose to 1.8 percent from 1.6 percent in April, well ahead of the 1.4 percent it had predicted for the second quarter.
The month-on-month rise in overall prices more than doubled to 0.7 percent from 0.3 percent in April. Analysts expected a monthly rate of 0.2 percent, and saw the annual rate holding steady at the 3.3 percent registered in April.
"This report will get markets thinking about a move by the Bank of Canada sooner than they had previously anticipated," said Craig Alexander, chief economist with Toronto-Dominion Bank.
"Quite frankly, I think the BoC is still focused on the economic risks. As a consequence, today's inflation report doesn't change our thinking the Bank of Canada probably won't move off the sidelines until January of next year."
Bank of Canada Governor Mark Carney signaled in an interview last week that he might have to keep monetary policy stimulative because of "substantial headwinds".
The next rate decision is on July 19, though most do not expect a hike then. Continued...