Canadian Inflation Slows More Than Forecast to 0.7%

Consumer prices in Canada rose less than forecast in October, putting the inflation rate below the Bank of Canada’s target range.

Prices rose 0.7 percent from a year earlier, compared with 1.1 percent increases in the prior two months, Statistics Canada said today in Ottawa. Economists projected a 0.8 percent gain according to the median estimate in a Bloomberg survey.

Bank of Canada Governor Stephen Poloz told lawmakers two days ago that inflation has been lower than he would like it to be, and reiterated that the economy needs the “substantial” stimulus of a 1 percent policy interest rate. Consumer prices have been below the 2 percent midpoint of policy makers’ 1 percent to 3 percent target range since May 2012.

“It re-enforces the point there is exactly zero urgency for the bank to move” interest rates higher, said Doug Porter, chief economist at BMO Capital Markets in Toronto. “Years of the world economy operating below capacity is cutting inflation pressure everywhere.”

The Canadian dollar weakened 0.2 percent to C$1.0534 per U.S. dollar at 10:53 a.m. in Toronto. It earlier reached C$1.0569, the weakest level since July 9. Two-year federal government bond yields were unchanged at 1.11 percent.

Gasoline prices fell 4.3 percent in October from a year earlier and 5.1 percent from September, Statistics Canada said today.

Core Inflation

The core inflation rate, which excludes eight volatile products, slowed to 1.2 percent from 1.3 percent, matching economist forecasts. The main price increases in October were for shelter and food, which rose by 1.3 percent and 0.9 percent, respectively.

Grocery pricing “is still very competitive,” Eric La Fleche, chief executive officer of Montreal-based grocery chain Metro Inc., said on a Nov. 13 earnings call when asked about food inflation.

The Bank of Canada has predicted inflation would average 1.3 percent in the October-December period, and the core rate would average 1.4 percent. The bank said at its last interest-rate decision on Oct. 23, when it dropped language about raising interest rates, “the fact that inflation has been persistently below target means that downside risks to inflation assume increasing importance.”

Weak job growth and declines for prices of imported goods such as food suggest inflation won’t rebound soon, said Matthieu Arseneau, senior economist at National Bank of Canada in Montreal.

‘Very Tame’

“Inflation remains very tame in Canada,” Arseneau said in a client note. Headline and core inflation will stay well within the bottom half of the bank target range “for the foreseeable future,” he said.

On a monthly basis, total inflation fell 0.2 percent in October, the first decline since April, while the core rate rose 0.2 percent. Economists surveyed by Bloomberg predicted that prices would fall 0.1 percent on a monthly basis and the core rate would increase 0.2 percent.

Seasonally adjusted inflation fell 0.1 percent in October after a revised 0.1 percent increase the prior month, and the adjusted core price index was unchanged.

Statistics Canada today also reported that September retail sales rose 1 percent on the biggest gain at new car dealerships in more than four years.

Investors will focus more on the inflation report as a sign of weakness the central bank must account for, said Camilla Sutton, head of currency strategy at Bank of Nova Scotia.

“There are some disinflationary pressures in Canada that are likely to build a more dovish bank of Canada,” she said by phone from Toronto.

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