May 23, 2014 / 12:40 PM / 6 years ago

UPDATE 2-Inflation jumps to Bank of Canada's 2 pct target in April

* Annual inflation rate highest since April 2012

* Monthly, yearly inflation and core inflation hit forecasts

* Total inflation 2.0 pct yr/yr, 0.3 pct mo/mo

* Core inflation 1.4 pct yr/yr, 0.2 pct mo/mo

* Analysts see rate cut as less likely (Recasts with impact on Bank of Canada policy)

By Randall Palmer

OTTAWA, May 23 (Reuters) - - Canada’s annual inflation rate rose to the central bank’s 2 percent target in April for the first time in two years, Statistics Canada said on Friday, further dampening talk of a cut in interest rates.

The jump from 1.5 percent in March was exactly as expected in a Reuters survey of analysts, as was the 0.3 percent monthly rise in prices from March.

Energy prices rose 2.4 percent on the month, with natural gas jumping a further 8.2 percent after a 10.9 percent hike in March and gasoline up 2.1 percent. The fact that the 0.2 percent monthly price decline in April 2013 no longer figured in the calculations also boosted the annual rate.

Bank of Canada Governor Stephen Poloz has flagged low inflation as one of the biggest risks facing the economy and has insisted a rate cut was as likely as a rate hike, but Royal Bank of Canada strategist Mark Chandler said the central bank would have to tone down the downside risks.

“I think the tone of it will change,” he said.

“They’re not going to make a big change because they’ll have to wait for the next forecast, which will be the following MPR (Monetary Policy Report) in July. So, it’ll be a subtle shift, but they should start to talk about more balanced risks.”

Core inflation, which helps guide the Bank of Canada since it excludes natural gas, gasoline, fruit and vegetables and other volatile items, edged up to 1.4 percent in April from 1.3 percent in March, with prices rising 0.2 percent on the month. Both figures again matched the median forecasts in a Reuters survey.

The Bank of Canada, which tries to keep overall inflation in the range of 1 to 3 percent, said last month it expected inflation to be at 2 percent on a sustained basis starting in the first quarter of 2015.

“It is ... notable that from the moment Governor Poloz fretted about ‘too-low-for-comfort’ inflation at the start of the year we’ve had pretty much a one-way trip north,” said Doug Porter, the Bank of Montreal’s chief economist.

“In fact, Canada is now toward the upper end of inflation tables in the industrialized world, and you’re hard-pressed to find another industrialized economy with inflation higher than Canada and we’re right in line with the U.S.,” Porter said.

“So the governor can hardly suggest Canadian inflation is notably low. It really isn’t any more.” (Additional reporting by Andrea Hopkins and Leah Schnurr in Toronto; Editing by Chizu Nomiyama and Paul Simao)

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