February 15, 2013 / 6:23 PM / 6 years ago

Canadian inflation seen easing to 0.7 percent in January

OTTAWA (Reuters) - Canadian consumer prices are expected to have risen in January after two months of declines, but the annual inflation rate will ease to a three-year low of 0.7 percent, likely keeping the central bank on the sidelines throughout 2013.

The median forecast by analysts in a Reuters poll was for a 0.2 percent increase in the consumer price index in the month, after a 0.6 percent and 0.2 percent drop in December and November, respectively.

Economists expect to see prices in January rose for new cars, clothing, and some food items like meat and gasoline.

But those increased won’t be enough to keep the annual rate from softening to 0.7 percent from 0.8 percent in November, the lowest since October 2009.

The closely watched core rate, which excludes gasoline and other volatile items, should climb 0.1 percent in the month for an annual rate of 1.1 percent, according to the poll.

The Bank of Canada targets overall inflation at the midpoint of a 1-3 percent range. The rate has been below that range since November and was at or below the 2 percent target for the last 10 months of 2012.

One reason why inflation remains muted is that price pressures seen a year earlier have now fallen out of the annual inflation rate calculation, particularly price hikes for energy products and vehicles, said Emanuella Enenajor, economist at CIBC World Markets.

CIBC is in the dovish camp with its call for a mere 0.5 percent inflation in January,

“We do see first-quarter inflation looking weaker than what the Bank of Canada is looking for, and that just adds additional downside to the bank’s own outlook,” she said.

“We don’t see any rate hikes until 2014, and our weaker call for inflation is one of the reasons,” she said.

The central bank sees inflation troughing in the first quarter, with an average 0.9 percent rate, and returning to 2 percent by the second half of 2014.

Reporting by Louise Egan and Teresa Ruiz; Editing by Leslie Adler

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