Bloomberg News

Canada’s Inflation Was Slowest Since June 2010 on Energy

June 22, 2012

Canada’s inflation rate in May was the slowest since June 2010 as energy costs declined, supporting the central bank’s projection for modest output and price gains.

The consumer price index rose 1.2 percent in May from a year ago, compared with a 2 percent gain the prior month, Statistics Canada said today from Ottawa. The core rate, which excludes eight volatile products, increased 1.8 percent after an April gain of 2.1 percent. Economists surveyed by Bloomberg forecast a 1.5 percent rise in consumer prices and a 1.9 percent gain in the core.

Bank of Canada Governor Mark Carney said yesterday that inflation will slip below 2 percent in the short term because of lower gasoline prices. At the same time, he reiterated that it “may become appropriate” to raise his key 1 percent interest rate for the first time since September 2010 as the economy moves gradually toward full output.

“I find it very difficult to believe the Bank of Canada will raise rates this year,” said Douglas Porter, deputy chief economist with Bank of Montreal (BMO)’s BMO Capital Markets in Toronto. “The inflation data today is just the cherry on top of the sundae.”

Canada’s currency strengthened 0.3 percent to C$1.0266 per U.S. dollar at 10:23 a.m. in Toronto. One Canadian dollar buys 97.41 U.S. cents.

Gasoline Drops

Gasoline prices fell 2.3 percent in May from a year earlier, the first decline in 23 months, Statistics Canada said, and natural gas costs dropped 16.6 percent.

Inflation in May was also restrained by a 0.3 percent decrease in clothing costs following April’s 2.4 percent increase, while fresh vegetable costs dropped 7.1 percent.

On a monthly basis, total inflation fell 0.1 percent in May and the core rate rose 0.2 percent. Economists surveyed by Bloomberg predicted total monthly inflation would rise 0.1 percent and the core rate would advance 0.3 percent.

Seasonally adjusted inflation fell 0.2 percent in May while the adjusted core rate was unchanged.

Other reports this month have shown a decline in retail sales, slower housing starts and falling exports. Carney yesterday said the expansion this year may be slower than the 2.4 percent pace he forecast in April.

While inflation has averaged 1.6 percent so far in the second quarter, lagging the central bank’s 2 percent forecast, average core inflation has been close to the bank’s 1.9 percent prediction.

“These developments are largely consistent with what the Bank has signaled in its recent communications,” said David Tulk, chief Canada macro strategist at Toronto-Dominion Bank (TD)’s TD Securities unit. “Core inflation is unlikely to fade significantly, which underscores our view that the next move in the overnight rate is up.”

To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net

To contact the editors responsible for this story: Chris Wellisz at cwellisz@bloomberg.net; David Scanlan at dscanlan@bloomberg.net


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