UPDATE 2-Canada April inflation tops forecast at 1.8 pct

* Fuel and autos push CPI higher

* Core CPI jumps to 1.9 pct

* Natural gas prices no longer dragging on CPI

* Little new pressure on BOC to hike rates
(Adds analysts, market reaction, details)

By Louise Egan

OTTAWA, May 21 (BestGrowthStock) – Canadian inflation was slightly
higher than expected in April on a rise in gasoline and auto
prices, keeping alive the possibility of a June interest rate
hike by the Bank of Canada.

The consumer price index gained 0.3 percent in the month
for an annual inflation rate of 1.8 percent, Statistics Canada
said on Friday. The rate quickened from 1.4 percent in March
and topped the consensus forecast of 1.7 percent.

Analysts said the report did little to change the overall
inflation outlook and would not likely be the main factor
determining central bank policy.

“I don’t think it really adds a lot to the mix for the June
1 rate decision. The way it stands now, it’s slightly tilted
for the bank to go,” said Mark Chandler, fixed income
strategist at RBC Capital Markets.

The Canadian dollar (CAD=D4: ) briefly firmed just after the
report but then weakened to C$1.0722 to the U.S. dollar, or
93.27 U.S. cents, from C$1.0696, or 93.49 U.S. cents just
before the data.

Gasoline prices contributed most to the rise in CPI, while
natural gas prices rose for the first time in a year.

Seven of the eight components of the CPI showed price
increases in the year to April, Statscan said.

Core CPI, which excludes volatile items like gasoline,
climbed 0.3 percent in the month for an annual rate of 1.9
percent, driven mostly by vehicle prices. Analysts forecast a
1.8 percent rate.

The report shows inflation heading closer to the Bank of
Canada’s 2 percent target and may add pressure on the bank to
raise its key interest rate on June 1 from the record low of
0.25 percent.

After the bank’s announcement in April that it was
withdrawing its conditional pledge to hold rates at 0.25
percent until the end of June, markets had bet heavily on a
June 1 rate hike, the first in the Group of Seven major
industrialized economies.

But those expectations have since lessened over growing
concerns about euro-zone sovereign debt.

“It really comes down to the European credit situation and
financial markets, whether they can settle down over the next
week. I think the Bank of Canada is probably more focused on
that situation than the inflation story right now,” said Sal
Guatieri, senior economist at BMO Capital Markets.

Yields on overnight index swaps, which reflect market
expectations of the key policy rate, edged higher after the
report and suggested a 54.52 percent chance the bank would
raise rates by 25 basis points in June.

The Bank of Canada’s latest forecast is for inflation of
1.7 percent and core inflation of 1.9 percent in the second
quarter. It sees core inflation easing slightly this year and
staying near 2 percent in the medium term.

Stock Report

(Editing by Padraic Cassidy)

UPDATE 2-Canada April inflation tops forecast at 1.8 pct