(Adds analyst reaction, Canadian dollar strengthening)
By David Ljunggren
OTTAWA Feb 24 Canada's annual inflation rate
jumped to a stronger-than-expected 2.1 percent in January, its
highest for more than two years, government data showed on
Friday, bolstering the Canadian dollar.
Analysts said that the rise was unlikely to affect the Bank
of Canada's monetary policy since underlying inflation was
The main reason for the jump in overall inflation was a 20.6
percent year-on-year jump in gasoline prices, the largest yearly
increase since September 2011, Statistics Canada said.
Once energy prices were stripped out, though, year-on-year
inflation was only 1.4 percent.
Analysts polled by Reuters had forecast an annual rate of
1.6 percent, below the Bank of Canada's 2.0 percent target.
Inflation in Canada has not been this strong since October 2014,
when it hit 2.4 percent.
"I would view the overall report as dovish. And I think
that's how the Bank of Canada will (see) it," said Derek Holt,
head of capital markets economics at Scotiabank.
The central bank has held rates steady at 0.5 percent since
cutting them twice in 2015, citing labor market slack and an
output gap that the bank does not expect to close until
Consumers paid 2.4 percent more for shelter while food
prices slipped by 2.1 percent from January 2016.
All three new measures of core inflation the Bank of Canada
established late last year showed underlying inflation below 2.0
"There is nothing here for the Bank of Canada to get too
excited about. It just reinforces the message that inflation is
just not on the radar in Canada," said Sal Guatieri, senior
economist at BMO Capital markets.
The Canadian dollar initially hit a one-week high of
C$1.3060 to the U.S. dollar, or 76.57 U.S. cents, up from
C$1.3104, or 76.31 U.S. cents. It later gave up most of its
One of the new measures of core inflation - CPI common,
which the central bank says is the best correlation to the
output gap - was furthest away from target, slipping to 1.3
percent from 1.4 percent.
CPI median, which shows the median inflation rate across CPI
components, remained at 1.9 percent while CPI trim, which
excludes upside and downside outliers, increased to 1.7 percent
from 1.6 percent.
"My sense is that the Bank of Canada will look through this
just given that all three measures of core are running below two
percent," said Andrew Kelvin, senior rates strategist at TD
(Additional reporting by Fergal Smith and Solarina Ho in
Toronto; Editing by Chizu Nomiyama and W Simon)