UPDATE 2-Canada inflation muted, no rates pressure seen

* Annual inflation rate 1.9 pct vs 1.7 pct in August

* Core CPI rate slips to 1.5 pct year-over-year

* Analysts see no pressure for rates increase soon
(Adds details, comment, dollar reaction)

By David Ljunggren

OTTAWA, Oct 22 (BestGrowthStock) – Canada’s annual inflation rate
rose to a relatively tame 1.9 percent in September, as
expected, prompting analysts to predict the Bank of Canada
would keep interest rates steady for the time being.

Statistics Canada said on Friday that higher energy and
transportation costs pushed the overall index up from the 1.7
percent recorded in August. The annual core inflation rate,
which strips out volatile items and the effects of tax changes,
dropped to 1.5 percent from 1.6 percent.

The figures are unlikely to alarm the Bank of Canada, which
kept interest rates on hold this week and promised to carefully
consider any future hikes. It predicted both measures of annual
inflation would hit its 2.0 percent target by the end of 2012.

“I don’t think it’s much in the way of a market mover
simply because of what we already know from the Bank of Canada
this week and I don’t think as well that it’s going to have
much of an impact in their near-term thinking,” said Mark
Chandler of RBC Capital Markets.

The Canadian dollar firmed to C$1.0255, or 97.51 U.S.
cents, from C$1.0274, or 97.33 U.S. cents just before the
report.

Prices increased in seven of the eight major components of
inflation, with clothing and footwear as the only exception.
Energy prices advanced 5.6 percent during the 12 months to
September compared to a 5.0 percent rise in August.

The consumer price index rose by 0.2 percent in September
from August while the core rate was also up by 0.2 percent. The
seasonally adjusted rate posted a 0.3 percent month-on-month
increase.

“Inflation remains tame in Canada, which will allow the
Bank of Canada to stay on hold well into 2011,” said Robert
Kavcic of BMO Capital Markets.

Traders are split over when the central bank — which had
raised rates three consecutive times between June and September
— will move again.

A Reuters poll of Canada’s 12 primary dealers this week
showed five expect the bank to have hiked rates at least once
by next March.

Based on a Reuters calculation, the market is pricing in an
97.64 percent chance rates will remain on hold at the Dec. 7
rate decision (BOCWATCH: ).

“I think it’s very much a sleeper, that report, in the
sense that I think the (Bank) was right to take a pause earlier
this week and signal a more dovish tune,” said Sebastien
Lavoie, an economist at Laurentian Bank of Canada.

(Additional reporting by Claire Sibonney, Euan Rocha and
Jeffrey Hodgson in Toronto, Editing by Chizu Nomiyama)

UPDATE 2-Canada inflation muted, no rates pressure seen