March 18, 2020 / 1:52 PM / in 21 days

UPDATE 1-Canada February inflation rate falls to 2.2% on moderating gasoline prices

(Adds detail from report, background, C$, analyst comment)

OTTAWA, March 18 (Reuters) - Canada’s annual inflation rate dropped to 2.2% in February on moderating gasoline prices, Statistics Canada said on Wednesday, but some analysts said it was unlikely inflation would remain around the central bank’s 2% target given the current coronavirus outbreak.

Analysts in a Reuters poll had forecast a rate of 2.1%, down from the 2.4% in January. Excluding gasoline prices, the annual inflation rate was 2.0% in February.

“Canadian inflation trends were essentially right on target just before the (corona)virus intruded,” said Doug Porter, chief economist at BMO in a note. “This will almost certainly be the last time we will see 2% inflation for an extended period of time.”

“In that environment, the Bank of Canada has a free hand to do what it takes to support the economy,” he added.

In an emergency move on Friday, Canada’s central bank slashed its overnight interest rate by 50 basis points as it tries to shield the economy from the impact of the coronavirus outbreak and falling oil prices.

“The Bank will be focusing on supporting activity to minimize as much as it can the drag on inflation from increasing economic slack,” said Royce Mendes, senior economist at CIBC Capital Markets, in a note.

The Canadian dollar weakened to 1.4430 to the U.S. dollar, or 69.30 U.S. cents after inflation data, after hitting an earlier four-year low.

Statscan said year-over-year gasoline prices rose less in February, by 7.0% compared with the 11.2% in January due to lower crude prices caused by weaker demand because of the coronavirus outbreak.

CPI common, which the central bank says is the best gauge of the economy’s underperformance, was at 1.8%. CPI median, which shows the median inflation rate across CPI components, was at 2.1%, while CPI trim, which excludes upside and downside outliers, was at 2.0%. (Reporting by Dale Smith in Ottawa; Editing by Kelsey Johnson and Steve Orlofsky)

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