Canada Inflation Unexpectedly Accelerates

Canadian annual inflation unexpectedly accelerated in February as gasoline prices rose during the month., Bloomberg 3/19/2009 5:47:23 AM

The year-over-year inflation rate quickened to 1.4 percent from 1.1 percent in January, Statistics Canada said today in Ottawa. The consumer price index rose 0.7 percent from January, the first increase in five months, the agency said.

The increase in inflation may only be temporary and may not ease pressure on the Bank of Canada to take additional measures to stem the recession, which recent data suggest is deepening, said Mark Chandler, a fixed-income strategist at RBC Capital Markets in Toronto.

Earlier this month, the Bank of Canada cut its benchmark lending rate to a record 0.5 percent, and said it is preparing to use policies beyond interest-rate moves, if needed, to revive an economy hit by a recession and tight credit markets.

The bank sets interest rates to keep inflation close to 2 percent, the middle of a 1 to 3 percent target band, and seeks to stimulate growth when the pace of consumer price increases is seen remaining below the target.

The Bank of Canada had predicted in January the annual inflation rate will fall below zero in the second and third quarters because of a drop in energy prices. Canada’s economy shrank at a 3.4 percent annual pace in the fourth quarter, the most since 1991.

Inflation excluding gasoline and seven other volatile items, the so-called core rate, was unchanged on the year at 1.9 percent in February. On a monthly basis, core prices rose 0.5 percent. Economists forecast the core index would advance 1.5 percent from a year before and increase 0.1 percent during the month, based on the median of 19 estimates.

Gasoline prices rose 5.6 percent in February, while rising clothing costs also helped push the index higher during the month, the statistics agency said.

Canada Inflation Unexpectedly Accelerates