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File photo of shoppers in Toronto’s Kensington Market. (Fred Lum/Fred Lum/The Globe and Mail)
File photo of shoppers in Toronto’s Kensington Market. (Fred Lum/Fred Lum/The Globe and Mail)

Canada’s inflation rate holds steady at three-year low Add to ...

Canada’s annual inflation rate was 0.8 per cent in December, the same as in November, Statistics Canada said Friday.

The moderate increase is in line with low inflation rates over the past several months as the Canadian economy posts sluggish growth.

Economists had been anticipating an annual inflation rate of 1.2 per cent in December, much more drastic than the unchanged 0.8 per cent.

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On a month-to-month basis, the consumer price index fell 0.6 per cent, compared with economists’ consensus expectations of a 0.2-per-cent drop.

The numbers indicate there is little reason for the Bank of Canada to raise interest rates any time soon.

Bank of Canada Governor Mark Carney said on Wednesday that higher rates now are “less imminent” as economic growth is slower than the central bank had forecast a few months ago.

The Bank of Canada’s goal is to keep inflation at a rate of about 2 per cent per year.

“The inflation data was much softer than expected by consensus, although consistent with growing economic slack in Canada,” National Bank of Canada senior economist Krishen Rangasamy said in a research note Friday.

“The inflation data certainly supports the BoC’s dovish turn this week, and suggest that interest rate hikes are highly unlikely this year.”

The slower increase in the consumer price index in 2012 compared with 2011 was mostly due to smaller price increases for gasoline and food, Statistics Canada said.

Gasoline prices increased 2.5 per cent in 2012 following gains of 20.0 per cent in 2011 and 9.1 per cent.

Food prices rose an average of 2.4 per cent last year, compared with an increase of 3.7 per cent in 2011.

In December of 2012, consumer prices dipped 0.6 per compared with November, slightly above economists’ expectations.

Prices in five of eight major categories in December posted no price change, while clothing and footwear, and health and personal care were up slightly.

The annual core inflation rate – which strips out energy and certain foodstuffs – fell to 1.1 per cent, from 1.2 per cent in November.

David Madani, Canada economist with Capital Economics, said that surprising drop “suggests there is much more slack in the economy than most economists previously thought.

“With subpar economic growth forecast ahead, disinflationary pressures are only going to get more intense, with underlying inflation possibly falling below the Bank’s 1 per cent to 3 per cent target range. This is more evidence that interest rates may be headed lower.”

Toronto-Dominion Bank economist Francis Fong said growth should accelerate through the end of 2013, a trend that would result in inflation statistics rising.

“However, given the low starting point, the Bank of Canada likely has little impetus to move off the sidelines in the near future. With economic growth expected to accelerate, household debt growth slowing, and a decided lack of inflationary pressures, the Bank is somewhat vindicated in its statement that the need to withdraw monetary stimulus is less ‘imminent’.”

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