Canadian October Consumer Prices Unexpectedly Fall

Canadian prices unexpectedly fell in October, bringing annual core inflation below the central bank's target for the first time since June 2006 and suggesting that interest rates may be lowered sooner than anticipated.

The consumer price index fell 0.3 percent in the month and rose 2.4 from a year earlier, slowing from a pace of 2.5 percent in September, as the costs of gasoline and passenger vehicles declined. Economists forecast a 0.1 percent monthly gain and a 2.8 percent annual increase, based on the median of 23 responses in a Bloomberg News survey.

The figures suggest inflation is more tepid than the Bank of Canada predicted in a quarterly forecast last month as a higher currency makes imported goods cheaper and creates more room for the central bank to cut interest rates.

The central bank said on Oct. 18 that inflation would peak at 3 percent this year before returning to policy makers' 2 percent target in the second half of 2008.

The Canadian dollar has gained as much as 27 percent this year, touching an all-time high of 90.58 Canadian cents per U.S. dollar on Nov. 7 before weakening in the past two weeks. The currency rose to 98.25 Canadian cents per U.S. dollar at 9:18 a.m. in Toronto, from 98.38 cents yesterday.

While the Bank of Canada isn't expected to lower rates at its next decision on Dec. 4, policy makers probably will indicate a reduction is coming, said Avery Shenfeld, a senior economist with CIBC World Markets in Toronto.

Core inflation, which excludes some volatile goods such as gasoline, advanced 1.8 percent in October from a year earlier, the slowest since June 2006, compared with 2 percent in September. On a monthly basis, core prices fell 0.2 percent.

Economists forecast a 2 percent annual rate for core inflation and a 0.1 percent increase for the month of October.

The drop in the October consumer price index was led by a 3.3 percent decline in gasoline costs. Lower prices also were recorded for food, household furnishings, passenger vehicles and clothing.

Canadian October Consumer Prices Unexpectedly Fall

11/20/2007 6:51:44 AM