January 18, 2019 / 2:16 PM / a year ago

UPDATE 1-Canada December annual inflation rate rises to 2.0 pct

 (Adds economist comments, details)
    TORONTO, Jan 18 (Reuters) - Canada's annual inflation rate
in December firmed to 2.0 percent from 1.7 percent in November,
on the back of rising air transportation and telephone service
costs which offset lower energy prices, Statistics Canada said
on Friday.
    But the stronger-than-expected inflation reading was
unlikely to encourage Bank of Canada to immediately raise
interest rates, economists said.
    "There is no urgency whatsoever for the Bank to move," Doug
Porter, chief economist at BMO Capital Markets said. "We’ve been
looking for two rate hikes later this year, and I stress the
word 'later'. We’ve got them going in July and December."
    The Canadian dollar          got a mild boost from the
inflation data, edging up to touch 1.3241 to the U.S. dollar.
     The median forecast of analysts surveyed by Reuters was for
the consumer price index to be -0.4 percent for the month, and
annual inflation of 1.7 percent in December.
    "I wouldn't read too much into it," said Andrew Kelvin,
senior rates strategist at TD Securities. "There was a big boost
from air travel again, so that's something we would expect to
unwind in the coming months. What's more important is that the
core inflation metrics were stable and we did have a bit of a
downward revision to the median core CPI metric."
    Last week, the Bank of Canada held rates steady as expected
but said more increases would be necessary even though low oil
prices and a weak housing market will harm the economy in the
short term.
    The central bank cut its near-term growth forecasts to
reflect the impact of crude prices but said the slowdown should
be temporary and predicted the economy would post
above-potential growth in 2020.
    The bank has raised rates five times since July 2017 and as
recently as last month said the pace of tightening could be sped
up depending on economic data.
    The bank noted that much of the economy was operating close
to capacity but said consumption spending and housing investment
had been weaker than expected as housing markets adjusted to
tougher mortgage rules and higher interest rates.
    Percent changes             Month-on-month      
                                 Dec      Nov         Dec    
    CPI - all items             -0.1     -0.4        +2.0   
    CPI - common                 n/a      n/a        +1.9   
    CPI - trim                   n/a      n/a        +1.9   
    CPI - median                 n/a      n/a        +1.8   
    Bank of Canada core         -0.2     -0.2        +1.7   
    All items ex food/energy    +0.1     -0.3        +2.3   
    Goods                       -0.7     -0.7        +0.2   
    Services                    +0.5     -0.1        +3.5   
    Energy                      -3.7     -4.8        -3.7   
    Seasonally adjusted         -0.2     -0.1         n/a    
    Bank of Canada core 
    seasonally adjusted         +0.2     +0.1         n/a    
    NOTE: None of the figures except those in the last two lines
are seasonally adjusted. The median prediction of analysts
surveyed by Reuters was for the consumer price index to be -0.4
percent for the month, and annual inflation of 1.7 percent in

 (Reporting by Denny Thomas
Editing by Susan Thomas)
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