Canada Inflation Gain Is Least Since 2013 as Gas Drops 21%

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Canada’s inflation increased at the slowest rate since October 2013 last month as costs for gasoline and fuel oil dropped.

The consumer price index rose 0.8 percent in April compared with a year earlier, Statistics Canada said Friday from Ottawa. The Bank of Canada already predicted last month inflation would fall outside its 1 percent to 3 percent target range, and called for a second-quarter pace of 0.8 percent.

Governor Stephen Poloz said in a May 19 speech it may take until around the end of 2016 before the economy reaches full output and price gains return sustainably to a 2 percent target. Policy makers expect the positive aspects of the oil-price shock to emerge later this year.

“Things are going according to the Bank of Canada’s plan,” Krishen Rangasamy, senior economist at National Bank Financial in Montreal, said by telephone. “It’s very unlikely that they change their tone” next week, he said.

Friday’s inflation report is the last major set of data before the central bank’s May 27 rate decision. Economists surveyed by Bloomberg predict the benchmark overnight rate will remain at 0.75 percent where it’s been since the bank lowered it from 1 percent in January. They also forecast today’s report would show total inflation of 1 percent and core of 2.4 percent.

Gas Prices

The April drop in total inflation was led by a 13.5 percent fall in energy prices from a year earlier, after a 10.4 percent decline in March, Statistics Canada said. Gasoline prices fell 21 percent on the year, natural gas by 14.6 percent and fuel oil dropped 20 percent.

The core inflation rate, which excludes eight volatile products, rose 2.3 percent. That measure accelerated at a 2.4 percent pace in March, the fastest since 2008.

Crude oil is Canada’s top export and the price drop to about $60 a barrel from more than $107 last year triggered layoffs and canceled investments from companies such as Talisman Energy Inc. and Cnooc Ltd.’s Nexen Energy.

The central bank sets interest rates to keep inflation in the middle of a 1 percent to 3 percent band.

Canada’s dollar weakened 0.7 percent to C$1.2282 per U.S. dollar at 9:45 a.m. Toronto time, as the lower-than-forecast inflation reading bolstered the view the central bank won’t be increasing interest rates anytime soon. Five-year government bond yields rose 3 basis points to 1.04 percent.

A separate Statistics Canada report Friday showed retail sales rose 0.7 percent to C$42.5 billion ($34.8 billion) in March, versus the median economist forecast of a 0.3 percent increase. The increase was led by a 1.5 percent rise at motor vehicle and parts dealers.

Excluding energy, Canada’s inflation rate slowed to 2.2 percent in April from 2.3 percent in March.

On a monthly basis, total inflation fell 0.1 percent in April and the core rate rose 0.1 percent. Economists surveyed by Bloomberg predicted that overall monthly prices would rise 0.1 percent and the core rate would advance 0.2 percent.

Seasonally adjusted inflation fell 0.1 percent in April and the adjusted core index of prices was unchanged.

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