WRAPUP 1-Food, gasoline lift Canada annual inflation rate to 2 pct in Jan

Fri Feb 19, 2016 9:29am EST
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By Leah Schnurr

OTTAWA Feb 19 (Reuters) - Canada's annual inflation rate picked up to 2 percent in January, the highest since November 2014, lifted by food prices and a rise in gasoline costs and underlining expectations the Bank of Canada will keep monetary policy unchanged next month.

Separately, retail sales slumped in December as unseasonably warm weather in many parts of the country cut into seasonal purchases, data also released by Statistics Canada showed on Friday.

Annual inflation was 2 percent, surpassing economists' expectations for 1.7 percent, and bringing the rate up to the midpoint of the Bank of Canada's target.

After being suppressed by a drop in energy prices, gasoline prices jumped 2.1 percent, the first annual increase since October 2014. Nonetheless, prices still fell 6 percent on a monthly basis.

Food costs rose 4 percent as consumers paid 18.2 percent more for fresh vegetables, suggesting the impact of a weaker Canadian dollar was being felt.

Derek Holt, economist at Scotiabank, said the firmer inflation figures reinforced ideas that the Bank of Canada will pause on monetary policy for an extended period.

"They have been fairly explicit on communicating that to the markets, more on the side of tossing the ball back to the federal government and on stimulus expectations," he said.

After cutting interest rates twice last year, the bank held steady at its last meeting in January, noting concern about the sharp drop in the loonie. The bank is widely expected to keep policy unchanged again in March.   Continued...