Canada Inflation Rate Declines to 2.9% as Energy Gains Slow

Canada’s annual inflation rate slowed in October for the first time in three months as energy prices cooled, while food costs increased.

The consumer price index rose 2.9 percent in October from a year earlier compared with a 3.2 percent pace in September and a May peak of 3.7 percent, Statistics Canada said today in Ottawa. Economists surveyed by Bloomberg News predicted a 2.8 percent reading according to the median of 24 estimates.

The annual core inflation rate, which excludes eight volatile items such as gasoline, slowed to 2.1 percent from September’s 2.2 percent pace that was the fastest since December 2008. Economists forecast 1.9 percent core inflation.

Bank of Canada Governor Mark Carney has said that he has “flexibility” in how soon he meets the bank’s 2 percent inflation target during the economic recovery. The central bank’s key interest rate has been 1 percent since September 2010 and its Oct. 25 policy announcement removed a reference to the need for reducing monetary stimulus.

“It’s a pretty firm report,” said Rudy Narvas, senior economist at Societe Generale, citing the rise in the core rate. The Bank of Canada is “going to err on the side of caution given global risks, that’s the key point.”

The Canadian dollar rose for the first time in five days, advancing 0.2 percent to C$1.0272 per U.S. dollar at 9:49 a.m. in Toronto. One Canadian dollar buys 97.35 U.S. cents.

The central bank projects inflation will slow to an average of 1 percent in the second quarter of next year and return to 2 percent at the end of 2013.

Slower Energy Gains

Gasoline prices rose 18.2 in October from a year earlier versus the September pace of 22.7 percent, Statistics Canada said. The gain in fuel oil prices also slowed to 22.1 percent from 27.4 percent in September. Natural gas prices fell 2.2 percent in October from a year ago.

Households paid 4.3 percent more for food in October than a year earlier and automobile insurance premiums rose 3.8 percent, Statistics Canada said.

Since June, three of the index’s eight major categories have recorded inflation less than 2 percent, said Matthieu Arseneau, an economist at National Bank Financial.

“Price pressures are coming from several sources,” he said. “That, however, won’t change the Bank of Canada’s highly stimulative monetary policy for now given the huge risks that Canada faces.”

Monthly Gain

On a monthly basis, overall consumer prices rose 0.2 percent in October, matching the gain in September. The core rate slowed to 0.3 percent from 0.5 percent. Economists surveyed by Bloomberg predicted 0.1 percent gains for both measures.

On a seasonally adjusted basis, the total inflation rate slowed to 0.3 percent in October from the month before, compared with a revised 0.4 percent in September. The seasonally adjusted core rate slowed to 0.2 percent from 0.3 percent the month before.

Statistics Canada also said today its index of leading economic indicators rose 0.2 percent in October, the fourth consecutive gain. Housing and the money supply led the increase.

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