Canada Inflation - By: gifts

Canada’s consumer prices and factory sales accelerated less than economists expected, government figures showed, giving Bank of Canada Governor Mark Carney room to honor his pledge to keep interest rates at a record low through June.

Consumer prices rose 1.3 percent in December from a year ago and fell 0.3 percent from November, Statistics Canada said today in Ottawa. Factory sales rose 0.1 percent in November. Economists predicted year-over-year inflation of 1.6 percent and that factory sales would rise 0.7 percent.

The bank yesterday kept its benchmark interest rate at a record low 0.25 percent and repeated the plan to keep it there through June unless the outlook for prices veers from its forecast. The bank also said that “considerable excess supply remains” and inflation won’t return to policy makers’ 2 percent target until the third quarter of next year.

The inflation report “gives the bank ammunition to keep interest rates low later into this year,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. “For the Bank of Canada, this report underscores the lack of inflation pressure in the economy.”

The Canadian dollar weakened after the data were released. It fell 1.5 percent to C$1.0470 per U.S. dollar at 4 p.m. in Toronto, from C$1.0314 yesterday. The yield on the October overnight index swap, a gauge of what investors predict the Bank of Canada’s key rate will be in that month, fell to 0.37 percent from 0.38 percent yesterday.

Stronger Dollar

The Canadian dollar has increased 21 percent against its U.S. counterpart over the past year. The strong currency and weak U.S. demand may slow the country’s recovery from a recession, the central bank said yesterday.

The gain in factory sales for November came as energy and chemicals gained while transportation shipments declined, Statistics Canada said today. Factory sales were 10 percent below the year-earlier month, Statistics Canada said. Unfilled orders fell 1.4 percent to C$51.5 billion, the lowest since March 2007.

“The strong domestic currency and weak demand for our products is going to lead to slower sales growth” over the next few quarters, said Ian Pollick, an economics strategist at TD Securities in Toronto, who said he does not expect the bank to raise its policy rate before the fourth quarter of this year. “There is really soft inflation pressure in the economy due to the amount of slack.”

The dollar’s rise also holds down inflation by making imported goods such as fresh fruit cheaper.

‘Modest Deflation’

“We actually anticipate modest at least deflation for the next quarter,” Bill McEwan, president of the Sobeys Inc. grocery-store chain, said on a conference call last month.

Most of the rise in inflation came from a 26 percent jump in gasoline costs. Prior gasoline-price declines helped drive the inflation rate below zero for four straight months through September, the longest period since 1953.

The acceleration in prices was slowed by lower costs for mortgage interest, natural gas and clothing. Natural gas costs dropped 31 percent in December from a year ago, while Statistics Canada’s index of mortgage interest cost declined 4.9 percent. Clothing and footwear costs fell 0.8 percent.

The so-called core inflation rate, which excludes gasoline and seven other volatile items, was 1.5 percent on an annual basis in December, unchanged from the previous month. Economists forecast the annual core inflation rate would be 1.7 percent, based on the median of 26 estimates.

The Bank of Canada said yesterday that core inflation has been “slightly higher than expected in recent months.” Governor Carney releases a full economic forecast tomorrow at 10:30 a.m. New York time and holds a press conference after.

The inflation rate was 0.3 percent for all of 2009, the lowest since 1994, Statistics Canada said.

About the Author

Canadian media pages Capital loans Canada industry guide

Article Directory Source: http://www.articlerich.com/profile/gifts/21309

Additional Articles From - Home | Finance | Mortgage