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Canada January Inflation Rises to 2.5% on Food, Gasoline

Bank Of Canada Governor Mark Carney
Bank of Canada Governor Mark Carney has said inflation will fall below his 2 percent target in the second quarter because the economy will continue to operate below its potential into next year. Photographer: Scott Eells/Bloomberg

Canada’s inflation rate unexpectedly quickened in January as prices increased for every category except for leisure products, led by groceries and fuel.

The consumer price index rose 2.5 percent in January from a year earlier after December’s 2.3 percent gain, Ottawa-based Statistics Canada said. The core rate, which excludes eight volatile items, rose to 2.1 percent from December’s 1.9 percent. Economists surveyed by Bloomberg predicted both rates would stay at last month’s levels, according to the median of 24 estimates.

Bank of Canada Governor Mark Carney has said inflation will fall below his 2 percent target in the second quarter because the economy will continue to operate below its potential into next year. Inflation exceeded 3 percent as recently as September as Carney sought to boost growth by extending the longest pause in interest rates since the 1950s.

“Core CPI is still at a comfortable level for the Bank of Canada,” said Jimmy Jean, a strategist in the fixed-income group at Desjardins Capital Markets in Montreal. “We expect soft domestic demand and still elevated spare capacity to keep a lid on inflation in months to come.”

The Canadian dollar appreciated 0.1 percent to 99.57 cents per U.S. dollar at 9:53 a.m. Toronto time. Government bond yields rose including the two-year bond to 1.10 percent from 1.07 percent, the highest since October 28.

The cost of bread rose 9.9 percent from a year ago in January, Statistics Canada said, followed by an 8.3 percent rise in fresh vegetables and a 6.5 percent increase for meat.

Higher Energy Costs

Gasoline posted a 6.8 percent gain while electricity costs were 7.3 percent higher, Statistics Canada said.

WestJet Airlines Ltd., the discount carrier based in Calgary, reported a 4.3 percent drop in fourth-quarter profit on Feb. 8 as the average fuel cost climbed 26 percent.

Energy drove a 2.9 percent average increase in consumer prices last year, the fastest since the central bank adopted inflation targets in 1991. The bank forecast last month that inflation would slow to a 1.5 percent annual pace in the April-June period.

“It’s a still a bit of a dovish story,” said Derek Holt, Scotia Capital’s vice-president of economics in Toronto. “This restores some sanity to the print we had in the last report” when inflation slowed from 2.9 percent to 2.3 percent.

Inflation Goal

The Bank of Canada runs monetary policy with a goal of achieving 2 percent annual inflation, the mid-point of a 1 percent to 3 percent target range.

The only major category of eight to post an annual decline in January was recreation, education and reading, with a 0.1 percent drop, as consumers paid less for video equipment and travel tours.

On a monthly basis, consumer prices rose 0.4 percent in January while core inflation rose 0.2 percent. Economists surveyed by Bloomberg predicted monthly inflation of 0.3 percent and a 0.1 percent advance in core prices.

Seasonally adjusted inflation rose 0.5 percent in January from the month before, more than reversing the December decline of 0.2 percent.

Canada’s index of leading economic indicators rose for the seventh consecutive month in January led by housing while December jobless benefits claims rose, Statistics Canada also reported today. The leading index gained 0.7 percent, matching December’s revised increase, and the number of Canadians receiving jobless benefits increased 0.8 percent.

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