Core inflation hits near 3-year high

Fri Oct 21, 2011 12:27pm EDT
 
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By Louise Egan

OTTAWA (Reuters) - Canada's annual core inflation rate jumped in September to its highest level in nearly three years, causing traders to scale back the likelihood of central bank interest rate cut this year or next.

The core rate sped up more than expected to 2.2 percent from 1.9 percent in August, according to Statistics Canada data on Friday. The core index is considered a better gauge of price trends because it excludes eight volatile items including gasoline and food.

"From a policy point of view, the increase in core has got to be of the greatest concern," said Paul Ferley, assistant chief economist at the Royal Bank of Canada.

"Certainly it will shift expectations or put more weight to the next (rate) move being an increase, but, near-term, those external pressures keep the Bank of Canada on the sidelines," he said.

The overall annual inflation rate came in at 3.2 percent, remaining above the central bank's traditional comfort zone and a notch above forecasts, as consumers were hit by higher gasoline and food prices.

The return of price pressures at a time of weak growth has been seen across many industrialized countries. Canada's inflation rate, which has eased from a 5-1/2 year-high of 3.7 percent in May, remained tamer in September than the U.S. rate of 3.9 percent or Britain's 5.2 percent, both three-year highs.

Finance Minister Jim Flaherty said he was not too worried by the inflation report.

"I'm more concerned quite frankly about growth, economic growth, and I'm pleased that we are seeing reasonable, moderate economic growth in Canada and some good signs in the United States. I wish I could say that of Europe," he told reporters. [ID:nN1E79K0QQ]   Continued...

 
<p>A man pumps gas into his truck at a Petro-Canada gas station in Toronto January 31, 2008. REUTERS/Mark Blinch</p>