Inflation rate lowest in almost 2 years at 1.2 per cent: Statscan

Core inflation rate eases to 1.8 per cent
By Louise Egan and Alex Paterson
||Last Updated: 06/22/2012

(Reuters) — Canada's annual inflation rate slowed more than expected in May to 1.2 per cent as gasoline prices tumbled on a year-on-year basis for the first time in almost two years, Statistics Canada said on June 22.

Inflation, down from two per cent in April, was below the 1.5 per cent median forecast by analysts in a Reuters poll.

But the closely watched core inflation rate, a better measure of underlying price trends because it excludes eight volatile items, stayed closer to the Bank of Canada's two per cent target, easing to 1.8 per cent in May from 2.1 per cent in the previous month.

Excluding energy only, the index rose 1.7 per cent on the year compared with 2.1 per cent in April, Statistics Canada said.

The softer inflation gives the central bank another reason to refrain from raising interest rates any time soon.

In a speech on Thursday, central bank chief Mark Carney stuck to the message he has been giving since April — that a rate hike may be in the works.

But market players doubt he is in any rush as the European debt crisis threatens to slow the pace of growth, and new government measures introduced on June 21 to curb heavy household borrowing could substitute for tighter monetary policy.

The consumer price index (CPI) edged down 0.1 per cent in May from April and the core CPI climbed 0.2 per cent. Both had risen 0.4 per cent in April.

Gasoline prices fell 2.3 per cent from May 2011. Other reasons for the lower inflation were a decline in clothing prices and slower price gains in passenger vehicles.

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