Inflation eases, allowing Bank rate-hike delay

Inflation eases, allowing Bank rate-hike delay

Financial Post
April 25, 2010 

Canada's annual rate of inflation eased unexpectedly last month, possibly delaying an interest-rate hike by the Bank of Canada and knocking the loonie below parity with the U.S. dollar.

The consumer price index rose 1.4 per cent in March from a year earlier, following a 1.6-per-cent annual pace the previous month, Statistics Canada reported Friday, as clothing and mortgage-interest costs declined during the month, offsetting increases in gasoline prices.

Core inflation -- which eliminates volatile-priced items such as food and energy -- was 1.7 per cent in March, compared to 2.1 per cent in February.

Economists had expected an overall annual rate of 1.6 per cent and a core-inflation reading of two per cent.

"That whooshing noise you just heard was a giant sigh of relief from the Bank of Canada," said Douglas Porter, deputy chief economist at BMO Capital Markets.

The dollar fell below parity with the U.S. currency following the inflation report, but later recovered to close at $1.0009, up nine basis points from Thursday's finish.

The Bank of Canada said Tuesday -- following its regular monetary policy meeting -- that it would keep its trendsetting interest rate at record-low 0.25 per cent. But the bank dropped a conditional commitment to keep borrowing costs at that level until July, clearing the way for a possible rate hike in June.

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