Forex News – Canadian inflation rate rises in April, within BOC target

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Inflation in Canada rose more than expected in April according to a CPI report released on Friday, driven up by higher gasoline prices.

CPI came in at 2.0 percent, up from 1.9 percent in March. However this matches the Bank of Canada’s target rate.

Core CPI, which is the annual core rate that excludes gasoline, some food and other volatile items, rose to 2.1 percent from 1.9 percent. On a monthly basis, total and core inflation rose 0.4 percent from March.

This helped the Canadian dollar gain slightly against the greenback after the data, though only briefly. The loonie is however off four-month lows reached yesterday.

Chief economist at Laurentian Bank, Carlos Leitao said after the data that the data were in line with expectations and leaves the door open for the Bank of Canada to raise interest rates .

Leito said:

“It does keep the door open, if the Bank of Canada at some point decides it should raise interest rates because of financial stability issues, the fact that inflation is at or slightly above target gives them enough reason to do so. It would have been a problem if inflation starts to fall. The Bank would have a hard time raising rates. But with inflation staying at or slightly above target then if they do decide to move for other reasons they can.”

“We expect the Bank to move this year, in December. There will be a rate hike in December followed by another in January 2013. And the reason for those modest rate hikes is purely from a financial stability point of view, not because of inflation and not because the Canadian economy will be so hot that it requires tighter policy, but because the housing market requires some assistance in making sure it does slow down.”