December 19, 2014 / 3:38 PM / 4 years ago

Gasoline prices cool Canada inflation; cutting pressure for rate move

OTTAWA (Reuters) - Tumbling gasoline prices cooled inflation in Canada last month, providing the country’s central bank with plenty of room to keep interest rates at their current low levels for some time yet.

People refuel their vehicles at a Petro-Canada gas station in Toronto, June 23, 2014. REUTERS/Mark Blinch

The annualized inflation rate pulled back to 2.0 percent from October’s strong 2.4 percent, data from Statistics Canada showed on Friday. That was short of economists’ forecasts for 2.2 percent.

A 5.9 percent year-on-year drop in gasoline prices was the main driver of the pullback. On a monthly basis, gasoline prices were at their lowest level since February 2011, falling alongside crude oil prices.

Core inflation, which strips out volatile items and is closely watched by the Bank of Canada, fell back to 2.1 percent from 2.3 percent, short of expectations for a rise to 2.4 percent.

November’s slowdown brought the inflation rate smack in line with the Bank of Canada’s target of 2 percent. While inflation has run hotter than the bank had anticipated this year, the bank has said repeatedly it expects that to be temporary.

The bank’s benchmark rate is 1 percent, and it is not expected to raise rates until the fourth quarter of next year, according to the most recent Reuters poll. [CA/POLL]

“Certainly this report will keep, I think, the Bank of Canada in wait-and-see mode,” said Paul Ferley, assistant chief economist at Royal Bank of Canada.

“It’s certainly not going to suggest advancing any tightening by the Bank of Canada,” he said. “If anything, it may sort of argue for the bank further delaying tightening interest rates.”

The Canadian dollar weakened against the U.S. dollar after the inflation data CAD=D4.

Despite gasoline’s fall, consumer prices increased in seven of the eight major components measured by Statistics Canada, led by higher costs for shelter and food. On a monthly basis, overall inflation edged down 0.4 percent, and the core measure declined 0.2 percent.

Separate data showed retail sales were unchanged in October from September. Increases in most sectors were offset by sales declines at motor vehicle and parts dealers.

The retail report suggests consumer spending is slowing in the final quarter of the year, likely putting economic growth in the quarter at about 2 percent, down from the third quarter’s 2.8 percent, said Sal Guatieri, senior economist at BMO Capital Markets. “The broad-based weakness in retail sales was disappointing,” he said.

Additional reporting by Solarina Ho and Allison Martell, Editing by Peter Galloway

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