Canadian Inflation Quickens Most in 16 Months on Gas

Canadian inflation accelerated to the fastest since May 2006 in September as gasoline prices rebounded, lending support to yesterday's Bank of Canada forecast that said prices will rise more quickly until the end of the year.

The consumer price index gained 2.5 percent from a year earlier, from a 1.7 percent pace in August, as gasoline costs surged 13 percent, Statistics Canada said today in Ottawa. Core inflation, which excludes some unstable goods such as fuel, advanced 2 percent from a year earlier, slower than August's 2.2 percent pace and matching the central bank's target.

Today's figures mesh with a Bank of Canada report released yesterday that said inflation will peak at 3 percent by the end of the year before returning to the bank's 2 percent target in the second half of 2008. Even as inflation picks up, policy makers left interest rates unchanged this week saying Canada's rising currency and tighter credit conditions will damp growth and, in turn, temper prices.

The slower core rate ``will be a comfort to the Bank of Canada, as they've expressed no desire to raise interest rates anytime soon,'' said Jacqui Douglas, an economist with TD Securities in Toronto. Douglas said she anticipates core inflation will accelerate before the end of the year.

Canada's dollar matched its U.S. counterpart Sept. 20 for the first time since 1976. The currency rose to $1.0351, the highest since June 1974, at 8:40 a.m. in Toronto from $1.0271 yesterday.

Economic Expansion

The country's longest economic expansion since World War II will slow to 2.3 percent next year, central bank policy makers said yesterday in their forecast, after predicting in July that growth for 2008 would be 2.6 percent.

On a monthly basis, consumer prices rose 0.2 percent from August and core inflation accelerated to 0.4 percent.

Economists in a Bloomberg survey predicted overall inflation would advance 2.5 percent from September 2007 and 0.2 percent from August, according to the median of 22 and 24 estimates. Core inflation was forecast to rise 1.9 percent from a year earlier and 0.2 percent from August.

Domestic demand and record energy prices have this year pushed the economy further beyond the point where more output can lead to faster inflation, the bank said yesterday. The economy was 0.8 percent above ``production potential'' last quarter, and won't be in balance until early 2009.

The bank said stronger-than-forecast consumer demand, driven by rising incomes and home prices, may spark inflation.

The alcoholic beverages and tobacco category led the year- over-year gain in prices, with a 3.8 percent price increase from September 2006. Transportation and housing costs also helped boost the year-over-year inflation rate, with price gains of 3.6 percent and 3.3 percent, respectively. Mortgage interest costs rose 6.4 percent, the fastest since June 1991.

Inflation was slowed in September by a 1.1 percent drop in clothing and footwear prices from a year earlier. The cost of food fell 0.8 percent from August to September.


Canadian Inflation Quickens Most in 16 Months on Gas

10/19/2007 6:23:22 AM