Canada Inflation Falls to 14-Month Low


Canada's annual inflation rate was the slowest since January 2007 last month as prices for automobiles dropped, giving the central bank room to lower interest rates for a fourth straight time next week.

Inflation stayed below the Bank of Canada's target as consumer prices rose 1.4 percent in March, slower than the 1.8 percent pace the month before, Statistics Canada said today in Ottawa. Economists forecast a 1.5 percent inflation rate, the median of 24 estimates.

Slower inflation has given the Bank of Canada the flexibility to lower borrowing costs to boost economic growth in the face of a possible recession in the U.S., Canada's main export market. The central bank last month reduced the benchmark rate by 50 basis points to 3.5 percent and economists expect it will cut another 75 basis points over decisions on April 22 and June 10.

The Bank of Canada alters borrowing costs to keep inflation at or close to a target of 2 percent. Policy makers said at their last decision on March 4 that inflation risks had ``clearly shifted to the downside.''

The currency advanced after the report to C$1.0001 per U.S. dollar at 7:18 a.m., from as low as C$1.0061 earlier today.

Core inflation -- which excludes volatile items such as gasoline -- decelerated to 1.3 percent, the slowest since July 2005, from 1.5 percent in February. Economists forecast the core rate, which the central bank uses as a gauge of future trends, would fall to 1.4 percent, the median of 24 estimates.

On a monthly basis, the all-items index rose 0.4 percent in March and the core index gained 0.2 percent, slower than what economists predicted.

The Canadian currency's rise to parity with the U.S. dollar last year prompted consumers to demand lower prices for imports such as cars, books and electronics.

The so-called loonie has gained 13 percent in the past 12 months and has traded close to parity since early December.

Purchasing or leasing vehicles was 7.1 percent less expensive in March than a year earlier, Statistics Canada said, as automakers lowered prices and offered incentives.

Prices of fresh vegetables plunged 18 percent while the cost of fresh fruit fell 11 percent from a year earlier. The pace of annual inflation for gasoline more than halved to 7.9 percent in March, the statistics agency said.

The biggest contributors to higher prices in March were an 8.3 percent increase in mortgage interest costs and a surge in prices for heating oils, the agency said.

 


TradingEconomics.com, Bloomberg
4/17/2008 6:38:17 AM