Canada Inflation Hits Poloz Goal for First Time in 2 Yrs

Canada’s inflation rate quickened in April to reach the central bank’s target for the first time in two years, led by higher energy costs that Governor Stephen Poloz says he will disregard.

The consumer price index rose 2 percent in April from a year ago following March’s 1.5 percent pace, as energy prices jumped 8.4 percent, Statistics Canada said today from Ottawa. The core rate, which excludes eight volatile products, climbed 1.4 percent after a prior gain of 1.3 percent. Both increases matched the median forecasts in Bloomberg News surveys.

Poloz said last month he will dismiss “transitory” price gains and focus instead on spare economic capacity that will keep core inflation below 2 percent until the first quarter of 2016. Today’s report is the last before a June 4 decision on the bank’s policy interest rate, which has been 1 percent since September 2010.

Today’s report “eased those earlier concerns expressed by the central bank about underlying core inflation hovering close to the bottom of their target range,” Paul Ferley, assistant chief economist at Royal Bank of Canada, said by telephone from Toronto. “It implies a continuing steady overnight rate,” said Ferley, who predicts a rate increase in the second quarter of next year.

The gain in energy costs was the fastest since November 2011 and included a 6.6 percent increase in gasoline and a 4.6 percent rise in electricity rates, Statistics Canada said. Natural gas costs jumped 26 percent in April from a year ago following a regulated increase in Ontario, Canada’s most populous province.

Food Inflation

Food inflation accelerated to 1.9 percent in April from 1.5 percent in March, led by meat, fruit and vegetables.

Canada’s dollar erased earlier losses after the report and rose 0.1 percent to C$1.0879 at 9:57 a.m. in Toronto. Bond prices rose, with the yield on the benchmark government 5-year note falling 2 basis points to 1.57 percent.

“Over the last few months, we have aggressively implemented selling price increases to deal with the recent rapid rise in certain commodity input costs,” William Kalutycz, Chief Financial Officer of Premium Brands Holdings Corp., said on a May 8 earnings call. The maker of deli meats is based in Richmond, British Columbia.

On a monthly basis, inflation rose 0.3 percent in April and the core rate increased 0.2 percent. Economists surveyed by Bloomberg predicted that the total index would climb 0.4 percent for the month and the core rate would increase 0.2 percent.

Seasonally adjusted inflation rose 0.2 percent in April, as did the adjusted core rate.

Policy Neutral

The Bank of Canada predicts inflation will average 1.6 percent between April and June, returning to its 2 percent target in the first quarter of next year. Core prices are forecast to average 1.2 percent this quarter and remain below 2 percent throughout next year.

“The Bank of Canada is looking for reasons to hold off on rate hikes for as long as possible,” Bill Adams, a senior international economist at PNC Financial Services Group in Pittsburgh. Poloz won’t move to tighten monetary policy with the U.S. Federal Reserve still tapering its extraordinary asset purchases through this year, he said.

Poloz has said he is neutral on the direction of the next interest-rate move, and that global interest rates will probably be lower than they have been in past economic cycles once the current recovery is complete.

Policy makers are focusing more on the “subdued” rate of core inflation rather than temporary price rises, Poloz said at an April 16 press conference. “While it’s true that our forecast is that total inflation will rise in the next few quarters as a result of energy price increases, those are by definition transitory effects.”

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