Newspaper article The Canadian Press

Inflation Hike Unlikely to Impact Interest Rates in Canada: Analysts: Inflation Rises to 2.5 per Cent in January

Newspaper article The Canadian Press

Inflation Hike Unlikely to Impact Interest Rates in Canada: Analysts: Inflation Rises to 2.5 per Cent in January

Article excerpt

OTTAWA - A one-month pop in gasoline prices propelled Canada's annual inflation rate up two notches to 2.5 per cent in January, reversing a recent trend toward moderating consumer price increases.

Pump prices climbed 2.8 per cent last month, partly due to political instability in the Middle East, contributing to upward pressure on both the monthly and annual indexes tracked by Statistics Canada.

The agency said Friday that consumer prices overall were 0.4 per cent higher -- half a point on a seasonally adjusted basis -- in January than they were in December, partly reversing the prior month's sharp 0.6 per cent decline.

As well, underlying core inflation -- which excludes volatile items such as some fresh food and gas -- rose to 2.1 per cent, one tick higher than the Bank of Canada's target.

But analysts said the uptick was a temporary phenomenon and unlikely to sway Bank of Canada governor Mark Carney from his low interest rate policy.

They had expected the monthly and annual measures to rise, largely on what was already known about gas prices, although not as sharply as occurred.

"Taking the downside surprise in prices for December along with the high-side surprise today pretty much brings us full circle to where many expected inflation to be at the start of the year," said Douglas Porter, deputy chief economist with BMO Capital Markets.

Keeping inflation in check is the top priority of the Bank of Canada, but governor Carney has exhibited a willingness to let the measure float above his two per cent target for most of 2011.

That isn't likely to change when the central banker next must consider his super low one-per-cent policy stance on March 8.

CIBC economist Emanuella Enenajor said the central bank believes inflation is due to moderate, and appears more concerned about the weak state of the Canadian economy, projected to grow a tepid two per cent this year.

"With growth in Canada lacklustre, and with inflation set to trend down measurably in the months ahead, today's print should have little policy implications," she said in a note to clients. …

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