May 31, 2008 / 4:50 PM / in 10 years

Forecasting inflation is now harder: Bank of Canada

OTTAWA (Reuters) - Rising gas prices are making it increasingly hard for the Bank of Canada to forecast inflation, central bank Governor Mark Carney said in an interview published on Saturday.

“It will be difficult to maintain our forecasts for growth in the consumer price index. It’s a question of math,” Carney told the French-language La Presse newspaper when pressed about the effect of rising gas prices.

High gasoline prices contributed to push Canada’s year-on-year inflation rate up to 1.7 percent in April, from 1.4 percent in March.

Carney said it was too soon to assess the trend for the bank’s core inflation rate, which strips out energy prices. The core rate was 1.5 percent in April, up from 1.3 percent in March.

Carney noted that Canadian food inflation had so far been muted, thanks to a strong Canadian dollar, tough competition between retailers and excess supply of meat. But he said this was a temporary combination of factors.

The Bank of Canada conducts monetary policy with the aim of keeping inflation in a tight target range around 2 percent.

Carney said he was still happy with the bank’s forecast last month that growth in the second quarter of 2008 would be 0.3 percent.

The interview was conducted on Tuesday, before the government on Friday released figures that showed the economy unexpectedly shrank by an annualized 0.3 percent in the first quarter.

It was the first time in almost five years that quarterly gross domestic product had fallen.

Reporting by David Ljunggren, editing by Janet Guttsman

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