Canada Inflation Falls to Slowest Since 2009 on Gasoline

Canada’s annual inflation rate fell in April to its slowest in more than three years, taking it below the central bank’s target band and adding to evidence of growing slack in the world’s 11th largest economy.

The consumer price index rose 0.4 percent in April from a year ago compared with a 1 percent annual gain the prior month, Statistics Canada said today from Ottawa. That’s the slowest since October 2009, when the country experienced a period of deflation at the end of the last recession.

The report is the last reading on inflation before Stephen Poloz takes over from Mark Carney as Bank of Canada Governor, and gives him less scope to raise his key policy interest rate. Economists forecast the central bank will keep the benchmark rate at 1 percent into next year.

The data reinforce expectations the “Bank of Canada will be on hold for an extended period,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia in Toronto, in a telephone interview.

Carney, alone among Group of Seven central bankers in signaling the potential for higher borrowing costs, has been softening his stance in recent interest rate announcements and cutting growth forecasts. After the central bank’s last meeting, on April 17, it predicted the economy wouldn’t reach full capacity until mid-2015, compared with its January projection for the second half of 2014.

Resisting Measures

Carney has resisted joining G-7 peers in taking extraordinary measures to stimulate demand, even with inflation around the bottom of the Bank of Canada’s target range, partly out of concern that easing monetary policy would exacerbate record household-debt levels.

If not for globally low interest rates and an “expansive” view of the central bank’s mandate, “these types of CPI numbers would arguably merit at least a hard look at measures to stimulate the economy via the interest rate channel,” Derek Holt, vice president of economist at Bank of Nova Scotia in Toronto, said in a note to investors.

The central bank, which projects inflation will remain below its 2 percent target until the second quarter of 2015, sets interest rates to keep inflation in the middle of a 1 percent to 3 percent band.

The Canadian dollar extended losses following the report, dropping 0.9 percent to C$1.0283 per U.S. dollar at 10:42 a.m. in Toronto. One dollar buys 97.26 U.S. cents.

Core Inflation

Canada’s core inflation rate, which excludes eight volatile products, decelerated to an annual pace of 1.1 percent after gains of 1.4 percent in the prior two months.

Economists surveyed by Bloomberg forecast that the total rate would slow to 0.6 percent and core would be 1.2 percent.

Transportation-related costs led the slowdown. Gasoline prices were down 6 percent in April from a year earlier, the biggest decline since October 2009, while prices of passenger vehicles dropped 0.7 percent from a year ago.

The index was also affected by the elimination of a harmonized sales tax in British Columbia. Prices in that province fell 0.8 percent from a year earlier, after rising 0.5 percent in March.

On a monthly basis, total inflation fell 0.2 percent in April, while the core rate rose 0.1 percent.

Economists surveyed by Bloomberg predicted that total monthly prices would be unchanged and the core rate would advance 0.2 percent.

Seasonally adjusted inflation fell 0.4 percent during the month of April and the adjusted core rate was unchanged.

In a separate report, Statistics Canada said that wholesale sales rose 0.3 percent in March to C$49.1 billion ($47.9 billion), led by gains in motor vehicles. Economists forecast a 0.4 percent gain in a Bloomberg survey with 17 responses. In volume terms, excluding the impact of price changes, wholesalers increased sales by 0.1 percent during the month.

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