Weak core-rate gains increase hope for rates cut

Prices in Canada unexpectedly fell in October to a rate below the Bank of Canada's two-percent target as lower automobile prices brought the core inflation rate down to a 1.8-per-cent annual gain.

Overall price gains, which include the food and energy items excluded from the core rate, rose by 2.4 per cent last month compared with an annual rate of 2.5 per cent in September.

Price gains in the core rate were the weakest since June 2006, likely prompting further speculation that the Bank of Canada will reduce borrowing costs in the months ahead.

The bank forecast in October that inflation would rise to three per cent in 2007 before falling back below the two-per-cent target in the second half of 2008.

Officials have recently hinted strongly in recent days that rate cuts lie ahead.

Bank of Canada Gov. David Dodge recently said risks to global growth are rising and that the bank would take that into account in setting policy. The next rate announcement is due Dec. 4.

Following the report's release the dollar fell to $1.0157 US from $1.0215, but later recovered to $1.0197.

Compared with September, the Consumer Price Index fell 0.3 per cent in October. Economists had expected a 0.1-per-cent monthly increase.

The core rate was expected to remain steady at two per cent.

"Overall, this report shows that inflation pressures in Canada have clearly come off the boil," said TD securities economist Jacqui Douglas.

"As a result, core CPI is almost certain to come in well below the Bank of Canada's forecast of 2.3 per cent in Q4, and appears to hit closer to 2.0 per cent for the quarter."

(Source: Vancouver Province)