UPDATE 2-Canadian inflation eases in May on energy

* All-items CPI and core CPI slightly above forecasts

* Pace of y/y rise in energy prices slows from April

* Upward pressure from transportation, shelter

* Less pressure seen on BOC to raise rates
(Adds market reaction, analysts)

OTTAWA, June 22 (BestGrowthStock) – Canada’s annual inflation rate
slowed in May from April, suggesting less pressure on the Bank
of Canada as it ponders the timing of its second interest rate
hike following the recession.

The consumer price index gained 0.3 percent in the month
for an annual rate of 1.4 percent, Statistics Canada said on
Tuesday. The rate eased from 1.8 percent in April and was a
notch above the consensus forecast of 1.3 percent.

“There was really no major surprise here, even though the
headline monthly increase looks somewhat on the high side,”
said Doug Porter, deputy chief economist with the Bank of

“The report was quite benign. Overall the main message is
that Canadian inflation is really going nowhere fast,” he

The Canadian dollar (CAD=D4: ) briefly firmed to a session
high of C$1.0212, or 97.92 U.S. cents, from C$1.0224, or 97.81
U.S. cents just before the data. But it then weakened to trade
little changed from before the report.

Consumers paid 6.9 percent more for gasoline in May than
they did a year earlier, but that price jump was much more
moderate than the 16.3 percent hike in April. Energy prices
overall climbed 6.2 percent.

Upward pressure on inflation also came from shelter costs,
specifically homeowner’s replacement costs, electricity and
fuels while mortgage interest costs fell.

Core CPI, which excludes volatile items like gasoline and
is closely watched by the central bank, came in higher but
still below the bank’s 2 percent target at 1.8 percent.
Analysts in a Reuters poll had forecast a 1.7 percent annual
rate versus 1.9 percent in April.

Core CPI rose 0.3 percent in the month, the same as the
previous month.

Analysts said the softer inflation figures would not
necessarily prompt the Bank of Canada to pause after it became
the first among the G7 advanced economies to hike rates
following the global financial crisis.

“I don’t think this is enough to change our view that the
Bank of Canada will hike by 25 basis points in July. I don’t
think this is going to alter the Bank of Canada’s thinking
regarding monetary policy,” said Matthew Strauss, senior
currency strategist at RBC Capital Markets.

The bank raised its key rate on June 1 by a quarter-point
to 0.5 percent. Markets widely expect another hike on July 20
but central bank chief Mark Carney said last week there was no
preordained path for monetary policy.

Stock Market Trading

(Additional reporting by Jennifer Kwan, Euan Rocha and John
McCrank in Toronto, Editing by Chizu Nomiyama)

UPDATE 2-Canadian inflation eases in May on energy