NEWS

Inflation stays at lowest level in 2 years

10/19/2012 10:24 EDT | Updated 12/19/2012 05:12 EST
Canada's annual inflation rate was unchanged at 1.2 per cent in September as lower prices for food and cars offset higher energy prices, according to data released today.

Statistics Canada reported Friday that prices were higher in all provinces last month compared to the same month a year earlier.

The 1.2 per cent level is the lowest Canadian inflation showing in more than two years.

Economists were expecting the figure to be a bit higher, at 1.4 per cent.

Loonie loses ground

The Canadian dollar sold off sharply as a result, losing 1.2 cents to 101.05 cents US within minutes of the data's release.

The weak inflation figure significantly diminishes the likelihood that the Bank of Canada will opt to change rates at its next six-week policy meeting, scheduled for next week.

The bank has been inching toward raising rates in an attempt to slow down the rate with which Canadians have been piling on debt. But with inflation remaining tame, the bank is now just as likely to want to keep rates low in an attempt to stimulate prices higher to get inflation back to its two per cent target.

"Add to the benign inflation picture an economy stuck in a soft growth patch, and the deck has been cleared for the Bank of Canada to water down its conditionally hawkish language and provide a more neutral assessment of the economic outlook at next Tuesday’s rate announcement," Toronto-Dominion Bank economist Derek Burleton said in a note following the release of the inflation data.

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