Canadian inflation heats up in December

Canadian inflation heats up in December

Statistics Canada says the consumer price index in December was up 2.0 per cent compared with year ago.

Canadian inflation unexpectedly accelerated last month on a surge in airfares, but underlying price pressures held steady, giving the Bank of Canada some breathing room on interest rates.

The cost of living increased at a two per cent annual pace in December, as cheaper energy prices were offset by higher prices for just about everything else.

"They will see that there's no acceleration in (core) inflation, so they can be patient in the coming months", National Bank of Canada deputy chief economist Matthieu Arseneau said of the central bank governing council in an interview.

The unexpected pick-up to end the year may raise some doubt about the Bank of Canada's forecasts that inflation will temporarily taper off in the first half of this year. They were stable and held below the central bank's target. Excluding the lower price of gasoline, inflation was 2.5 per cent in December. Statistics Canada also said to treat the jump in air transportation costs with caution after a change in how it's calculated. "At the same time, consumers paid 8.5 per cent less for natural gas in 2018, as a surplus in the commodity market drove consumer prices lower", said the federal agency.

Prices rose more on a year-over-year basis in seven provinces in December compared with the previous month, the report said. Only Newfoundland and Labrador, Nova Scotia and New Brunswick saw prices rise at a slower rate.

Consumer prices for gasoline rose more in 2018 (+12.6 per cent) than in 2017 (+11.8 per cent), as an increase in global crude oil prices and exchange rate pressures led to higher prices at the pump. It did note, however, that the weaker Canadian dollar could apply upward pressure on inflation.

Bank of Canada governor Stephen Poloz kept his benchmark interest rate unchanged last week at 1.75 per cent as the economy navigates what he described as a temporary period of softness created by a recent, sharp decline in world oil prices.

The Canadian economy is clawing its way through a soft patch, which will delay the next interest rate hike until at least April, according to economists polled by Reuters.

"I wouldn't read too much into it", said Andrew Kelvin, senior rates strategist at TD Securities.

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