Canada Inflation Unexpected Rise in May

Canadian consumer prices posted an unexpected annual increase last month on higher costs for food and household expenses such as child care, easing pressure on the Bank of Canada to add additional stimulus to the economy.

The consumer price index rose 0.1 percent in May from a year earlier and 0.7 percent from the previous month, Statistics Canada said today in Ottawa.

The Bank of Canada, which sets borrowing costs to keep inflation at 2 percent, cut its benchmark interest rate to 0.25 percent on April 21 and pledged to keep the rate there until June 2010 because a buildup of spare capacity in the economy should keep price increases below the target until 2011. The Bank of Canada also said it would be prepared to inject new money into the economy by purchasing assets if needed.

The annual inflation rate excluding gasoline and seven other volatile items -- the so-called core rate which is closely watched by the central bank -- accelerated to 2 percent from 1.8 percent in April.

The central bank projects the consumer price index will fall at an annual pace of 0.8 percent in the third quarter of this year, and inflation will not return to target before the second half of 2011. The annual inflation rate in April fell below the central bank’s target range of 1 percent to 3 percent for the first time since September 2006.

Food prices were up 6.4 percent in May from a year earlier, while the costs of household operations, furnishings and equipment rose at a 3.2 percent annual pace during the month, led by child-care expenses.

Gasoline prices fell 25 percent from a year ago, helping to limit the rise of the annual index, the statistics agency said, while the cost of buying a car dropped 6.6 percent.

On a monthly basis, core prices rose 0.4 percent.

Canada Inflation Unexpected Rise in May, Bloomberg
6/18/2009 8:50:13 AM