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Canadian consumer price inflation accelerated last month on higher prices for automobiles and clothing, supporting the view that interest rates will probably rise sooner than in the U.S.
The consumer price index rose 2 percent in April from a year ago compared with a 1.9 percent gain the prior month, Statistics Canada said today from Ottawa. The core inflation rate, which excludes eight volatile components, increased to 2.1 percent after a March gain of 1.9 percent. Economists surveyed by Bloomberg had forecast that both the total and core rate would be unchanged at 1.9 percent.
Bank of Canada Governor Mark Carney said April 18 that it “may become appropriate” to raise his key 1 percent interest rate for the first time since September 2010 with growth and inflation stronger than earlier forecast. Toronto- Dominion Bank’s TD Securities unit predicts two rate increases by year-end, while U.S. Federal Reserve policy makers last month discussed further easing.
“It supports the view that the Bank of Canada is likely to raise rates before the Fed,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia in Toronto.
Canada’s dollar strengthened 0.2 percent to C$1.0173 per U.S. dollar at 9:43 a.m. in Toronto. One Canadian dollar buys 98.30 U.S. cents. The yield on the benchmark five-year government bond rose to 1.43 percent from 1.39 percent.
Transportation costs rose 3.2 percent in April from a year ago, with passenger vehicles up 3.4 percent. Gasoline prices rose 3.3 percent from a year earlier, marking the slowest advance since September 2010.
Imperial Oil Ltd. (IMO), the Canadian company that’s 70 percent- owned by Exxon Mobil Corp., said April 26 that first-quarter profit rose 30 percent, helped by rising oil prices and record refining profit.
Clothing and footwear prices rose 2.4 percent as stores stocked new spring and summer outfits, Statistics Canada said. Food costs rose 2.5 percent, with restaurant meals gaining 2.8 percent.
The Bank of Canada last month said consumer prices would advance at an average 2 percent pace this quarter and 2.2 percent in the second half of the year. The bank runs monetary policy with a goal of keeping inflation at 2 percent and has maintained its policy interest rate at 1 percent since September 2010, the longest pause since the 1950s.
Renewed turmoil in Europe remains a potential obstacle to any rate increase. The central bank last month said that “external headwinds” were receding, and earlier this week the European Central Bank said it will temporarily stop lending to some Greek banks to limit risks from its debt crisis.
“Barring outright contagion from euro zone stresses to the Canadian economy, we still believe the Bank will focus on domestic fundamentals in considering a modest withdrawal of stimulus by year-end,” said David Tulk, chief Canada macro strategist at Toronto-Dominion Bank’s TD Securities unit.
Canada’s domestic strength was underlined by May 11 job figures showing the largest two-month employment gain in more than 30 years for March and April.
On a monthly basis, total and core inflation both rose 0.4 percent in April. Economists surveyed by Bloomberg predicted total monthly prices would rise 0.3 percent and the core rate would advance to 0.2 percent.
Seasonally adjusted prices rose 0.2 percent in April. The adjusted monthly core rate accelerated to 0.4 percent in April from 0.1 percent in March.
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