Canada defies global trend with tame inflation

Fri Feb 18, 2011 1:23pm EST
 
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A Reuters survey of Canada's 12 primary securities dealers taken after the inflation data was released showed no one expected the Bank of Canada to hike rates when it makes its next policy-setting announcement on March 1.

The survey also revealed that in the past month three of the dealers -- which work directly with the central bank as it carries out monetary policy -- had pushed back their forecast for the next rate hike. A third of dealers now expect this year's first tightening will be in May.

"From the (Bank of Canada) standpoint, nothing was priced in anyways for the March meeting. Growth is likely in the near term to be more important to them than current inflation numbers," said Mark Chandler, head of fixed income and currency strategy at RBC Capital Markets.

Overall, prices in January were up by 0.3 percent from December. Energy prices rose 9.0 percent in the 12 months to January following a 10.5 percent year-on-year rise in December.

The Canadian data followed a U.S. report on Thursday that showed core consumer prices there rose at the quickest pace in 15 months in January, suggesting a long spell of slowing inflation was coming to an end.

Canada's modest inflation picture also compares favorably to that in high-growth emerging economies, where surging commodity costs have put central banks on inflation alert.

China's central bank raised lenders' required reserves by 50 basis points on Friday, the second such increase this year as it tries to curb stubborn inflation.

South Africa, India and Russia are also concerned about rising prices, while food inflation has also been cited as a factor in the political unrest in the Middle East.

A report on Tuesday showed inflation in Britain jumped to twice the Bank of England's target in January, prompting BoE Governor Mervyn King to acknowledge that interest rates might rise more rapidly than economists had expected.

(Additional reporting by Howaida Sorour in Ottawa and Ka Yan Ng, Claire Sibonney and Euan Rocha in Toronto; Editing by Jeffrey Hodgson and Peter Galloway)