May 22, 2015 / 12:33 PM / 2 years ago

Canada April inflation at 0.8 percent, smallest gain in 1-1/2 years

OTTAWA (Reuters) - Canada's annual inflation rate cooled to 0.8 percent in April, making for the smallest increase since October 2013 as energy prices tumbled, though economists did not see it altering the course of monetary policy for now.

A separate report by Statistics Canada Friday showed retail sales climbed for a second month in a row in March, as consumers spent more on cars, food and alcohol.

But economists and markets focused on the softer-than-expected inflation figures, with the Canadian dollar falling to its weakest in nearly a month immediately after the report. [CAD/]

April's decrease brought inflation below the lower end of the Bank of Canada's 1 to 3 percent target range, and fell short of economists' forecasts for 1 percent.

Still, it was broadly in line with the central bank's forecast that weaker energy prices could temporarily pull inflation down before the rate returns to 2 percent in 2016.

Economists said it was unlikely to have an impact on monetary policy in the short term. The Bank of Canada is widely expected to hold rates at 0.75 percent when it meets next week. [CA/POLL]

"It's not good numbers but it's as expected," said Mark Chandler, head of Canadian fixed income and currency strategy at Royal Bank of Canada.

Core inflation, which strips out volatile items and is closely watched by the bank, was firmer than the overall rate, even as it edged down to 2.3 percent from 2.4 percent in March.

The easing of core inflation was also in line with the central bank's forecast, while the increase in retail sales should provide comfort that there are offsets to the negative impact of weaker oil, said David Tulk, chief Canada macro strategist at TD Securities.

The energy index fell 13.5 percent, its biggest drop since September 2009 due to lower prices for natural gas, gasoline and fuel oil. Excluding energy, inflation increased to 2.2 percent annually.

Retail sales rose 0.7 percent in March, topping forecasts, as consumers spent more on cars, food and alcohol. In volume terms, retail sales increased 0.1 percent.

A 1.5 percent increase at motor vehicle and parts dealers helped lead the gain on higher sales of both new and used cars.

Increased spending was seen at all stores in the food and beverage category, including stronger sales at grocery stores, and beer, wine and liquor stores.

Additional reporting by Susan Taylor, John Tilak and Solarina Ho in Toronto; Editing by Bernadette Baum

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