January 20, 2010 / 12:15 PM / 8 years ago

Canada inflation hits 10-month high on gasoline

OTTAWA (Reuters) - Higher gasoline prices pushed Canada’s annual inflation rate to a 10-month high in December, but the news is unlikely to knock the Bank of Canada off track in its pledge to hold interest rates steady for some time.

The consumer price index slipped 0.3 percent in December from November, Statistics Canada said on Wednesday. But 12-month inflation was 1.3 percent, the highest since the 1.4 percent rate of February 2009, due largely to the base effect of a steep decline in gasoline prices in December 2008. In November, annual inflation was 1.0 percent.

Still, the data was below market expectations and inflation was in the lower end of the Bank of Canada’s target range of 1 to 3 percent.

Analysts in a Reuters poll had forecast a 0.2 percent monthly decline in the CPI and 12-month inflation of 1.5 percent.

Core CPI, closely watched by the central bank, also came in slightly weaker than expected with a decline of 0.3 percent in the month for an annual rate of 1.5 percent, below the market forecast of 1.7 percent.

The central bank noted on Tuesday that core inflation had been slightly higher than it expected in recent months -- it was 1.5 percent in November and 1.8 percent in October -- but said it expected overall CPI and core CPI would reach its 2 percent target in the third quarter of 2011.

The bank held its key overnight rate on hold at a historic low of 0.25 percent and repeated its pledge to keep it at that level through the end of June, conditional on inflation staying tame.

It noted “considerable excess supply” remains in the economy, suggesting it was not worried about inflation just yet. The bank will provide more details on its outlook in a quarterly report on Thursday.

Gasoline prices explained much of the 12-month rise in the CPI in December for the second straight month, Statscan said. Gasoline jumped 25.6 percent from a year earlier and energy prices overall climbed 5.9 percent.

Six of the eight components of the CPI rose in the 12 months, with the exception of shelter and clothing and footwear.

On a monthly basis, clothing discounts and household operations and furnishings contributed most of the downward pressure. The clothing and footwear sector reported a 4.7 percent decrease in prices.

Reporting by Louise Egan; Editing by Randall Palmer

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