Canadian inflation down to 2.0 percent on lower gas prices

The big drop in Canadian gasoline prices slowed the country’s pace of inflation in November after a spike in October, giving the Bank of Canada confidence to keep rates neutral.

The consumer price index rose 2.0 percent in November from a year ago after a 2.4 percent spike in October, according to Statistics Canada.

The core rate, excluding eight volatile products (such as fruit, vegetables and gasoline) also dropped from 2.3 percent in October down to 2.1 percent last month.

According to a Bloomberg News survey, median responses had forecast that the rate would increase 2.2 percent and core inflation would be 2.4 percent.

November’s results are in line with the Bank of Canada’s target of 2 percent.

“Certainly this report will keep, I think, the Bank of Canada in wait-and-see mode,” said Paul Ferley, assistant chief economist at Royal Bank of Canada.

“It’s certainly not going to suggest advancing any tightening by the Bank of Canada,” he said. “If anything, it may sort of argue for the bank further delaying tightening interest rates.”

The Canadian dollar fell against the US dollar after the inflation results were released.

Stephen Poloz, Bank of Canada Governor, said that inflation will ease to a 1.4 percent pace in the second quarter of 2015, which will end a period of extended gains linked to a weak currency and increasing meat prices.

Policy makers have kept their benchmark overnight lending rate at 1 percent for over four years and, according to Bloomberg, many economists don’t believe Poloz will tighten that for at least another year.

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