Canadian Inflation Slows to Eight-Month Low on Gas

Canada's inflation rate slowed more than economists expected in August as gasoline prices fell, allowing the central bank to focus more on the risk that global credit shortages may curb growth.

The consumer price index gained 1.7 percent from a year ago, the smallest increase since January and down from 2.2 percent in the previous four months, Statistics Canada said today in Ottawa. Consumer prices fell 0.3 percent from July, as gasoline costs dropped 4.9 percent.

The figures suggest the Bank of Canada doesn't need to raise interest rates to stem inflation amid record home prices. Governor David Dodge kept the benchmark lending rate unchanged Sept. 5 and scrapped a reference to the need for an increase, saying a U.S. housing slowdown may hamper Canadian exports of lumber and other building products.

``This benign report and the supersonic loonie will at the very least calm any lingering inflation jitters at the Bank of Canada, at least for now,'' Doug Porter, an economist at BMO Capital Markets in Toronto, wrote in a note to clients. The loonie refers to the bird shown on Canada's one-dollar coin.

The Canadian dollar recovered earlier losses after the inflation report, trading for 98.79 U.S. cents at 7:52 a.m. in Toronto, from yesterday's 98.73 cents. The currency reached the highest since 1977 yesterday, after the U.S. Federal Reserve reduced its benchmark interest rate by a half percentage point.

`No Rush' to Cut Rates

``The Bank of Canada is in no rush to join the Fed in cutting rates, given much stronger growth fundamentals,'' Warren Lovely, an economist at CIBC World Markets in Toronto, wrote in a note to clients.

Canada's economy grew at an annualized 3.4 percent rate from April to June, and at a 3.9 percent pace in the first quarter, faster than the Bank of Canada expected

Signs inflation may pick up again include a Sept. 14 Statistics Canada report that showed unit labor costs, the cost of paying workers to produce an extra unit of a good, jumped 4.8 percent in the second quarter from a year earlier, the fastest since 1991. Also, average wages rose the fastest in six years in August with the jobless rate at a 33-year low of 6 percent.

Economists surveyed by Bloomberg News this month predict Canada's key rate will remain unchanged through next year. Inflation will accelerate to 2.9 percent in the fourth quarter, slowing to 2 percent between April and June 2008, according to the median of 12 forecasts gathered by Bloomberg.

Below Forecasts

All four inflation gauges were below forecasts in August.

Core inflation, which excludes some volatile goods including gasoline, advanced 2.2 percent from a year earlier, slower than July's 2.3 percent pace. The monthly core inflation rate was unchanged at 0.1 percent.

Economists in a Bloomberg News survey predicted overall inflation would advance 2.1 percent from August 2006 and 0.1 percent from July. Core inflation was forecast to rise 2.3 from a year earlier and 0.2 percent from the previous month.

Inflation was also slowed by a 17 percent drop in computer prices from a year earlier, and lower lettuce and potato prices.

Housing costs were the main contributor to the year-over- year inflation rate, with mortgage interest costs rising 6.1 percent, the fastest since June 1991. The cost of maintaining a home rose another 6 percent.



Canadian Inflation Slows to Eight-Month Low on Gas

9/19/2007 6:11:45 AM