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Rise in inflation could increase Canada's interest rates

Canadians could soon be facing higher interest rates after a sharp increase in the inflation rate propelled by higher gasoline and food prices.

A spike in the rate last month to 3.3 percent was the biggest single-month inflationary increase since September 2008 and was a setback, as Canada had been beating global trends, economists said.

The Bank of Canada prefers to keep inflation around 2 percent, with anything higher leading to the prospect of raising the key interest rate to cool off the economy.

The good news in the latest numbers was that "core" inflation was 1.7 percent higher. Core inflation excludes volatile items including gasoline, but it was still almost twice the 0.9 percent rate in February.

Canada's central bank had predicted inflation would reach 3 percent this spring and then back off.

The April inflation figures will be known before the central bank considers an interest-rate increase at its next meeting on May 31.

The bank "won't be comfortable keeping rates on hold beyond the next meeting if this (higher inflation) is not a fluke," said economist Douglas Porter of BMO Capital Markets.

There are predictions the key rate will be 3.5 percent by next year, up from 1 percent now.

Conservatives hopeful a vote split will help

Canada's ruling Conservative party continues to maintain its lead with one week to go before the federal election on May 2.

Prime Minister Stephen Harper is looking for his first Conservative majority government in four elections in the past seven years as support for the socialist New Democrats surges.

There's even a chance, according to polls, that Jack Layton's New Democrats could overshadow the independence-seeking Bloc Quebecois in its home province of Quebec.

Pollster David Coletto of Abacus Data said the catalyst for New Democrat support has been the recent "poor performance" of Liberal leader Michael Ignatieff.

Vote splitting between the New Democrats and the Liberals could allow the Conservatives to win their majority. Polls show Harper's party support as high as 43 percent.

News in brief

• Many Canadians are making a run to the U.S. border to fill up, saving as much as $20 on a tank of gas. Canada's higher dollar, which hit $1.05 U.S., and lower U.S. taxes and prices make it worth the drive for many to fill up. Average gas prices across Canada are about $1.30 a liter ($4.94 a U.S. gallon). With the dollar difference and lower prices and taxes, gas is about $3.61 a gallon over the border.

• Police and the Society for the Prevention of Cruelty to Animals continue to investigate the savage killings of about 100 sled dogs in British Columbia as a provincial task force calls for appropriate regulations for the industry. A Whistler-area dog sledding operator killed the dogs that were no longer needed after the Winter Olympics. Politician Terry Lake, a veterinarian who heads the task force, said it supports the dog-sledding industry but with better controls to ensure the proper care of the animals.

Facts and figures

The Canadian dollar continues at a 3-year high of $1.0482 in U.S. funds, while the U.S. greenback returns 95.40 cents Canadian, before bank exchange fees.

The Bank of Canada's key interest rate is unchanged at 1 percent, while the prime lending rate is 3 percent.

Canadian stock markets are mixed, with the Toronto exchange index higher at 13,972 points and the TSX Venture Exchange lower at 2,281 points.

Lotto 6-49: (Wednesday) 12, 15, 33, 34, 38 and 43; bonus 30. (April 16) 5, 7, 11, 12, 33 and 39; bonus 28. Lotto Max: (April 15) 3, 12, 14, 15, 25, 32 and 49; bonus 37.

Regional briefs

• There has been widespread flooding across Manitoba with about 75 roads washed out or closed to traffic. Hard hit has been the Peguis First Nation where hundreds of people were forced from their homes along Fisher River. Spruce Woods Provincial Park, west of Winnipeg, was also flooded as ice jams formed along rivers.

• The bodies of an Edmonton couple missing since January have been found in a field. Police say Perry Kit Wong, 72, and Eloise Fendelet, 71, were murdered, but a motive has not been determined. Police are also searching for a missing couple who disappeared last month, Albert and Rita Chretien of Penticton, British Columbia, who are in their 50s. They were last seen on March 19 in Baker City, Ore., while en route to Las Vegas.

Jim Fox can be reached at [email protected]

Rise in inflation could increase Canada's interest rates 04/23/11 [Last modified: Saturday, April 23, 2011 7:50pm]
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