Canada Inflation Quickens to 2-year High in October on Surge in Gasoline

Canada’s consumer prices advanced at the fastest pace in two years last month, exceeding all economist forecasts, as gasoline prices surged.

Consumer prices rose 2.4 percent in October after a 1.9 percent gain in September, Statistics Canada said. The core rate, which excludes eight volatile items such as gasoline, quickened to 1.8 percent from 1.5 percent. Economists forecast inflation would be 2.2 percent and the core rate 1.5 percent, according to the median of 23 estimates in a Bloomberg News survey. The maximum forecast for overall inflation was 2.3 percent.

The Bank of Canada said last month inflation will average 2.1 percent in the October-December period, and core prices will advance 1.6 percent. The central bank kept its key lending rate at 1 percent Oct. 19 after three prior increases, and said “slack” in the economy won’t be used up until the end of 2012.

“It’s certainly quite broad-based pressure, it’s quite surprising given the Canadian dollar and disinflation trends south of the border,” said Sal Guatieri, a senior economist at Bank of Montreal in Toronto. “The Bank of Canada is still worried about the outlook and the risks to the global economy,” he said, adding the central bank will likely stay “on the sidelines for a while.”

The Canadian dollar fell 0.1 percent to C$1.0195 per U.S. dollar at 7:40 a.m. in Toronto, compared with C$1.0187 yesterday. One Canadian dollar buys 98.09 U.S. cents.

Gasoline Prices

Gasoline prices accounted for about half the increase in the annual inflation rate, gaining 8.8 percent in October from a year earlier, Statistics Canada said. Overall energy prices advanced 9.1 percent on the year as natural gas rose 11 percent and electricity by 8.1 percent.

Passenger vehicle prices rose 4.9 percent, as did homeowner replacement costs, while property taxes increased 3.5 percent, the agency said in its report.

The Bank of Canada also said last month that sales tax increases in Ontario, British Columbia and Nova Scotia will quicken inflation by 0.7 percentage point from July to June 2011.

On a monthly basis, overall consumer prices rose 0.4 percent in October after a 0.2 percent gain the previous month. The core rate also advanced by 0.4 percent in October, the fastest since February. Economists predicted that monthly prices would rise 0.2 percent, and the core rate would increase 0.1 percent.

To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net.

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net; Christopher Wellisz at cwellisz@bloomberg.net.

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