Oct. 19 (Bloomberg) -- Canadian consumer prices advanced less than economists forecast last month, suggesting Bank of Canada Governor Mark Carney doesn’t need to emphasize raising interest rates at next week’s decision.
The consumer price index rose 1.2 percent in September from a year ago, matching the August pace, Statistics Canada said today from Ottawa. The central bank’s preferred core rate slowed to 1.3 percent from 1.6 percent in August, the least in more than a year. Economists surveyed by Bloomberg forecast total inflation of 1.3 percent and a core rate of 1.4 percent.
Carney has kept his key lending rate at 1 percent for more than two years and will probably leave it unchanged again at the Oct. 23 decision, according to a Bloomberg economist survey. Carney gave a speech Oct. 15 that left out a reference to the potential need for higher borrowing costs, and said next week’s economic forecast will reflect a slow global recovery.
“From the inflation side, there isn’t a lot of pressure there” to raise interest rates, said Dawn Desjardins, assistant chief economist at Royal Bank of Canada in Toronto.
Canada’s currency dropped 0.6 percent to 99.07 cents per U.S. dollar at 9:51 a.m. in Toronto. One Canadian dollar buys $1.0095. Two-year government bond yields declined by four basis points to 1.09 percent, while trading in overnight index swaps showed investors pricing in about seven basis points of rate cuts for the April 2013 rate decision.
The pace of inflation was slowed by a 14.2 percent drop in natural gas prices and a 2.2 percent decline in mortgage interest costs, Statistics Canada said today. The biggest contributors to the total price gain were a 4.7 percent advance in gasoline prices and a 6 percent rise in electricity.
Consumer prices will remain below the central bank’s 2 percent target through the middle of next year according to a Bloomberg economist forecast. The central bank sets interest rates to keep inflation at the center of a 1 percent to 3 percent band.
The central bank forecast in July that the economy would grow at a 2 percent annualized pace in the third-quarter, while economists surveyed by Bloomberg forecast it will be 1.7 percent instead. Carney is counting on business investment and consumer spending to bring the economy to full output in the second half of next year.
“Clearly, growth and inflation are both very soft in Canada,” said Krishen Rangasamy, senior economist at National Bank Financial in Montreal. Next week policy makers will probably pare their economic forecast and scale back “hawkish language” about raising rates, he said.
The core inflation rate averaged 1.5 percent in the third quarter, “well below” the central bank’s July forecast of 1.9 percent, Bank of Montreal economist Robert Kavcic wrote in a client note. “Market speculation continues to build that the tightening bias could be dropped at next week’s policy meeting,” he said.
The central bank’s forecast next week “will take into account the impact of the uncertainty,” about the global recovery, Carney said during his Oct. 15 speech in Nanaimo, British Columbia. He has said since April that tighter policy “may become appropriate” as the economy moves toward full output, a phrase he didn’t use that day.
Inflation was also slower than economist predictions on a monthly basis. Consumer prices rose 0.2 percent in September, as did the core rate, while economists surveyed by Bloomberg said both those measures would advance by 0.3 percent.
Seasonally adjusted inflation rose 0.2 percent in September while the adjusted core measure was unchanged, Statistics Canada said.
To contact the reporter on this story: Greg Quinn in Ottawa at email@example.com