23 Nov

Canada’s tame inflation cuts chances of rate hike soon


Posted by: Tony Passalacqua

OTTAWA — Tame inflation, combined with weak economic growth in this country and continuing global uncertainty, will likely keep interest rates at rock-bottom levels for some time to come.

Canada’s rate of inflation remained steady again in October, although slightly stronger than expected, with higher food and transportation prices offsetting a slower rise in energy costs.

Consumer prices rose 1.2% last month from the same time a year earlier, Statistics Canada said Friday. Core inflation — stripping out volatile items such as some food and energy products — was up 1.3% on an annual basis in October.

Both readings matched September’s price rises, but were less tame than economists had forecast. The consensus had been for overall inflation of 1.1% in October and a core increase of 1.2%.

That compares to an overall price rise of 1.2% in September and a core inflation pace of 1.3%.

The central bank’s monetary policy focuses on guiding inflation to a target of 2%, the midway point of its target range between 1% and 3%.

Overall inflation has not reached 2% since April. The highest level this year was 2.6% in February.

Bank governor Mark Carney and his policy team have left their trendsetting interest rate — the main monetary tool —at a near-record low 1% since September 2010. Most economists do not expect that rate to begin rising until at least mid-2013.

“Inflation continues to be a non-issue for the Canadian economy. Economic growth has slowed considerably this year, with data for the third quarter likely to decelerate from the first half of the year. This has translated into the slowing trend pace of inflation we have seen this year,” said Francis Fong, at TD Economics.

Friday’s report “is unlikely to give any impetus for the Bank of Canada to materially change its current lower-for-longer stance on monetary policy, which we expect to persist over the medium term.”

Robert Kavcic, an economist at BMO Capital Markets, said “a strong loonie and heightened retail competition have [also] worked to keep a firm lid on Canadian prices, leaving the Bank of Canada little to worry about on this front.”

In its Friday report, Statistics Canada said energy prices rose 1.7% in October from a year earlier, led lower by weaker gains for electricity and gasoline. That compares to a 2.9% annual increases in the previous month.

Electricity costs rose 1.7% last month, compared to an advance of 6% in September. “This smaller increase in the electricity index was the result of price declines recorded in Alberta,” the federal agency said. Prices in that province tend to be swing widely in line with market fluctuations.

Gas prices were up 4% year-over-year, down from a pace of 4.7% in September. Natural gas prices rose 11.6% in October from a year earlier, down from the 14.1% increase seen in the previous month.

Meanwhile, the increase in food prices accelerated in October, rising 2% from an annual pace of 1.6% in September. Gains last month were led by higher prices for meat and food purchased at restaurants.

Transportation costs were up 1.7% last month.