December 14, 2012 / 8:23 PM / 5 years ago

Canada November inflation still well below target

OTTAWA (Reuters) - Canadian inflation likely remained tame in November as gasoline prices fell and economic growth remained sluggish, keeping pressure off the Bank of Canada to resume raising interest rates.

The median forecast in a Reuters poll of analysts is for an annual inflation rate of 1.1 percent, down from 1.2 percent in October. The core rate is forecast to come in unchanged at 1.3 percent.

For the month, the overall consumer price index is predicted to stay flat while the core measure is seen rising 0.1 percent.

A nearly 6 percent drop in gasoline prices in November has helped dampen price pressures. New-car prices may also come in a bit lower than usual because of a methodological change introduced this year by Statistics Canada.

There is little risk that inflation will approach the central bank’s 2 percent target any time soon, putting it on the back burner as a concern for policy makers who are preoccupied by lackluster growth, high personal debt and the housing market.

Unlike the central banks of most other developed economies, the Bank of Canada has been indicating since April that it will look to raise its benchmark rate from the current 1 percent.

“Certainly it allows (the Bank of Canada) to focus on growth and sustaining the recovery. They don’t have to be concerned about moving above their inflation target,” said Paul Ferley, assistant chief economist at Royal Bank of Canada.

Ferley sees the economy picking up speed next year. “That will contribute to prices starting to move back closer to the inflation target of 2 percent.”

The central bank’s latest projections for the fourth quarter are for overall inflation to average 1.5 percent and core inflation to average 1.6 percent, although analysts say the actual figures will likely be lower.

Both measures of inflation should return to 2 percent by the second half of next year, it said. The bank will update its projections in January.

Experts will be watching closely new-car prices. In the past, Statscan incorporated prices for new car models for the upcoming year into the CPI for November, when automakers traditionally launched new cars.

To adjust to the changing industry practice of launching new vehicles throughout the year, Statscan began this year including new-car prices in the third month after their market introduction, which is when consumers start buying them in significant numbers.

New-car prices rose between 3.3 percent and 5 percent in the month of November over the past three years. That number could be slightly lower this time as a result of the new methodology.

Reporting by Louise Egan; Editing by Leslie Adler

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