Canada Inflation Rate Rises Most in 20 Months on Heating

Canada’s inflation rate accelerated the most in 20 months on a surge in home heating costs amid one of the most severe winters in decades.

The consumer price index rose 1.5 percent in January from a year earlier, the most since June 2012, following December’s 1.2 percent pace, Statistics Canada said today from Ottawa. The nation’s statistics agency also said retail sales in December dropped 1.8 percent, the most in a year. Economists forecast inflation rising at a 1.3 percent pace and a 0.4 percent drop in sales, according to median forecasts in separate Bloomberg News surveys.

Bank of Canada Governor Stephen Poloz has warned persistently slow inflation poses one of the biggest risks to the Canadian economy, partly because it reflects slack in production. This month’s reading suggests investors will scale back bets that Poloz will reduce interest rates later this year, even with the decline in store sales.

“CPI trumps retail sales,” said Camilla Sutton, chief foreign-exchange strategist at the Bank of Nova Scotia in Toronto. The stronger-than expected inflation report “feeds directly into Bank of Canada expectations,” she said, adding “it will remove any pricing for an interest rate cut in Canada and is Canadian dollar positive.”

Canada’s currency pared earlier declines after the report, trading down 0.4 percent higher at C$1.1143 per U.S. dollar at 8:53 a.m. in Toronto. It weakened as much as 0.9 percent to C$1.1194 earlier.

2% Target

Poloz last month kept the central bank’s key lending rate at 1 percent and said the risks of inflation holding below its 2 percent target have increased, which helped push the Canadian dollar to four-year lows.

Inflation averaged 0.9 percent last year, decelerating from 1.5 percent in 2012 to the slowest pace since 2009 when Canada’s economy was emerging from a recession.

The annual core rate, which excludes eight volatile products, accelerated to 1.4 percent from a 1.3 percent gain a month earlier. Economists surveyed by Bloomberg News forecast today’s reading of core inflation at 1.3 percent, according to the median forecast.

The central bank expects inflation will return to its 2 percent target in about two years, as a recovering economy and a weaker dollar help absorb excess capacity.

Natural Gas

On a monthly basis, prices rose 0.3 percent in January while core prices increased 0.2 percent. Economists forecast a 0.1 percent rise for both measures.

Statistics Canada also said today its seasonally adjusted inflation measure rose 0.2 percent in January from December, while the adjusted core rate rose by the same amount.

The cost of natural gas jumped 3.2 percent during the month, while home heating fuel oil was up 4.1 percent. Electricity gained 1.2 percent.

All energy costs jumped 0.8 percent during the month, the statistics agency said.

Among the eight major components of the consumer price index tracked by the agency, shelter and food costs were the biggest contributors to the increase in January inflation. Shelter costs increased 0.5 percent from December and were up 2.1 percent from a year ago. Food costs were up 0.4 percent during the month and are up 1.1 percent from a year ago.

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