June 17, 2016 / 12:58 PM / 2 years ago

Canada inflation cools in May on cheaper gasoline

OTTAWA (Reuters) - Canada’s annual inflation rate cooled in May on cheaper gasoline and a slowdown in price increases for food, but the Statistics Canada data was not expected to move monetary policymakers from the sidelines.

A man pumps fuel into his car at a gas station in Toronto April 22, 2014. REUTERS/Mark Blinch

The annual rate declined to 1.5 percent from April’s 1.7 percent, Statistics Canada said on Friday. That was a tad short of economists’ expectations for 1.6 percent.

Inflation remained comfortably below the Bank of Canada’s 2 percent target and gave policymakers room to remain accommodative.

The annual core inflation rate, which strips out some volatile items, was closer to the midpoint of the central bank’s 1 percent to 3 percent range, dipping to 2.1 percent from 2.2 percent.

The Canadian dollar slightly trimmed its gains against the greenback immediately following the data, but investors were more focused on Britain’s upcoming referendum on whether to stay in the European Union. [CAD/]

Since the Bank of Canada has repeatedly said temporary factors are influencing inflation, it is likely to focus more on the choppy economic growth expected over the second and third quarters, economists said.

The central bank said earlier this week that the economy was likely to be flat or contract slightly in the second quarter because of recent wildfires in Alberta that disrupted oil production. The third quarter is then expected to show an outsized rebound.

“The Bank of Canada’s main focus in terms of the outlook for growth is monitoring the impact of the (oil) shutdowns and activity outside of the energy sector,” said Paul Ferley, assistant chief economist at Royal Bank of Canada.

“I think it’s very much going to just stand on the sidelines monitoring the data.”

After cutting rates twice last year, the central bank is seen holding them steady at 0.5 percent until well into 2017. It makes its next interest rate decision on July 13. [CA/POLL]

Excluding gasoline, whose prices were down 7.1 percent in May from a year earlier, the consumer price index was up 1.9 percent.

Food prices were up 1.8 percent, their smallest annual gain since March 2014 and a significant slowdown from April’s 3.2 percent increase. Prices for fresh fruit and vegetables, as well as food purchased at restaurants, all decelerated.

All of the index’s eight major components rose, although half of them showed smaller annual gains than in April.

Additional reporting by Allison Martell in Toronto; Editing by Lisa Von Ahn

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