Inflation eases but rate cut seen less likely

Fri Nov 18, 2011 12:18pm EST
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By Louise Egan

OTTAWA (Reuters) - Canada's annual inflation rate moderated in October from a near three-year high in September but was still higher than expected, scaling back market bets for a central bank interest rate cut.

The consumer price index (CPI) rose 2.9 percent in October from a year earlier, easing from 3.2 percent in September as gasoline prices rose at a slower year-on-year pace, Statistics Canada said on Friday.

The core inflation rate, closely watched by the central bank because it excludes the prices of some volatile items, also eased to 2.1 percent from 2.2 percent.

While the move was in the right direction, it was less marked than forecast, prompting traders to scale back expectations the central bank would cut rates over worries about European and U.S. growth.

The consensus market forecast was slightly lower rates for total CPI and core CPI of 2.8 percent and 1.9 percent, respectively.

"All in all, higher than expected inflation rate in Canada," said Camilla Sutton, chief currency strategist at Scotia Capital. "With the exception of a few components most of the components were higher month-over-month so the gains were fairly broad-based," she said.

Canada's inflation has tamed since hitting a 5-1/2 year high of 3.7 percent in May. But the trend still mirrors growing price pressures seen across the industrialized world, which has put central bankers on the alert even while they keep a cautious eye on slumping confidence.

On a monthly basis, total CPI climbed 0.2 percent, matching the September gain. Core CPI rose 0.3 percent, down from 0.5 percent in September.   Continued...