(Updates with currency trading from sixth paragraph.)
July 22 (Bloomberg) -- Canada’s inflation rate slowed more than economists forecast in June as carmakers offered larger discounts, hotel rates declined and gasoline prices eased.
The consumer-price index increased 3.1 percent from a year earlier, Statistics Canada said today in Ottawa, following a May increase of 3.7 percent that was the fastest since March 2003. The lowest prediction in a Bloomberg survey of 24 economists was 3.4 percent, with a median forecast of 3.6 percent.
The core inflation rate, which excludes eight volatile items such as gasoline, unexpectedly slowed to a 1.3 percent pace in June from May’s 1.8 percent. Economists forecast it would accelerate to 1.9 percent.
Bank of Canada Governor Mark Carney said this week that inflation will exceed 3 percent, the top of his target range, in “the short term,” while keeping his key interest rate at 1 percent to foster an economic recovery. Policy makers are weighing rising prices against the risks posed by Europe’s debt crisis and slow U.S. growth.
“It certainly gives the Bank of Canada a little bit more flexibility to stay on the sidelines,” said Sal Guatieri, a senior economist at Bank of Montreal in Toronto.
The Canadian dollar fell 0.7 percent to 94.98 cents per U.S. dollar at 12:26 p.m. in Toronto. One Canadian dollar buys $1.0529. The two-year Canadian government bond yield fell five basis points to 1.51 percent.
The currency weakened from about 94.35 cents to 94.65 cents during the 40 minutes before Statistics Canada released the CPI data at 7 a.m. Toronto time.
“There was, once again, heavy speculation about the number before the release,” said Sebastien Galy, a senior foreign- exchange strategist at Societe Generale SA in London, via e- mail.
Canada’s statistics agency made economic data available to companies licensed to distribute its data up to 59 seconds before the official publication time for more than six years, according to a KPMG LLP report published yesterday on Ottawa- based Statistics Canada’s website.
“KPMG contacted a number of licensed distributors and concluded that it is unlikely that any data were actively released to their clients prior to the official release time,” a Statistics Canada summary of the report said.
The KPMG investigation was ordered in December by then- Industry Minister Tony Clement after the agency, Canada’s primary source of economic information, said it had allowed distributors to get information as much as 59 seconds before it was released to the public. The agency stopped the practice on Nov. 25 after being alerted to it by Bloomberg News.
A phone call and e-mail to the head of Statistics Canada’s media relations in Ottawa, Peter Frayne, seeking comment on the movement in the currency ahead of the data release, weren’t immediately returned.
The currency reached the strongest in more than three years yesterday on speculation the Bank of Canada will increase its policy interest rate this year. The central bank’s statement at its July 19 rate decision dropped the word “eventually” from a phrase about when policy makers will move.
“It’s comforting in so far that some of the immediate pressure on the Bank of Canada” to raise interest rates is lifted, said David Tulk, chief Canada macro strategist at Toronto-Dominion Bank’s TD Securities unit.
On a monthly basis, consumer prices fell 0.7 percent in June and the core measure fell 0.6 percent. Economists forecast consumer prices would drop 0.2 percent from May and that core prices would be unchanged.
Gasoline prices fell 3.7 percent on the month in June, slowing the year-over-year advance to 28.5 percent from May’s 29.5 percent, Statistics Canada said.
The main factor behind the decline in the annual inflation rate was a 3.1 percent drop in passenger vehicle prices that was due to “larger discounts given by some manufacturers,” the report said.
Traveler accommodation prices fell 2.9 percent in June from a year earlier, compared with a May gain of 3.3 percent.
The Bank of Canada two days ago raised its inflation forecast over the next nine months, saying consumer prices will average 2.8 percent from July through September and slow to 1.9 percent in the second quarter of next year. They also said the core rate, which excludes eight volatile items, will peak at 2.1 percent in the first quarter of 2012.
“The underlying inflationary pressures are stronger in Canada than they are in the United States,” said Paul Fenton, chief economist at Caisse de Depot et Placement du Quebec, Canada’s biggest pension-fund manager and a former Bank of Canada economist, before the report. “Starting to raise interest rates in the fall is the most likely outcome,” he said, adding the central bank “will go at a measured pace.”
Statistics Canada also said today that retail sales rose 0.1 percent in May, compared with economist predictions for a 0.3 percent decline. Gasoline receipts were the highest in almost three years and building material and gardening store sales rose 3.3 percent.
--With assistance from Ilan Kolet and Theophilos Argitis in Ottawa, Frederic Tomesco in Montreal and Chris Fournier in Halifax, Nova Scotia. Editors: Paul Badertscher, Carlos Torres
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