Canada inflation hits 8-year high

OTTAWA: Consumer prices in Canada rose 3.7 percent in a 12-month period ending in May, the highest increase in eight years, largely due to higher gasoline prices, a government agency said Wednesday.

Gasoline prices increased 29.5 percent, the largest increase since September 2005 when prices spiked in the aftermath of Hurricane Katrina, Statistics Canada said.

Canadians paid more for meat, bread and milk, passenger vehicle insurance premiums, airfare, restaurant meals, shoes, men's and children's clothing, electricity and fuel oil.

But mortgage interest cost, which measures the change in the interest portion of payments on outstanding mortgage debt, decreased over the period, as did prices for natural gas and video equipment.

On a seasonally adjusted monthly basis, consumer prices rose 0.2 percent from April to May.

Inflation was higher than anticipated by analysts, who said it could put pressure on the Bank of Canada to raise interest rates, which have remained fixed at 1.0 percent since October.

The central bank's core index, used in setting interest rates, remained relatively stable at 1.8 percent in May. The index excludes volatile elements such as gasoline prices.

But it is "gathering momentum" and "now running quite a bit ahead of the Bank of Canada's latest forecast," according to BMO Financial Group's chief economist Sherry Cooper.

"The pick-up in underling price momentum is a trend the inflation-targeting central bank can't ignore," echoed the Canadian Imperial Bank of Commerce.

Most predicted the central bank, which has hinted it would raise key lending rates in mid-2012, will be forced to move quicker on tightening monetary policy by hiking rates before the end of the year.

The Bank of Canada is scheduled to make its next rate announcement on July 19.

Copyright APP (Associated Press of Pakistan), 2011