WRAPUP 1-Canada inflation, spending data point to low rates

* Inflation eases more than expected in November

* October retail sales jump but only due to gas prices

* Consumer confidence continues to slump in December

* Bank of Canada rates seen comfortably on hold

By Louise Egan

OTTAWA, Dec 21 (BestGrowthStock) – Canada’s annual inflation rate
eased in November from a two-year high the month before, likely
to the relief of the Bank of Canada, which wants to keep
interest rates low until economic recovery gains impetus.

The inflation report from Statistics Canada on Tuesday was
followed by retail sales figures that showed consumers were
keeping a lid on spending in October. Then came a Conference
Board of Canada report that showed consumer confidence slipped
in December to levels last seen a year ago.

The data’s failure to show any reason to expect higher
interest rates in Canada in the near future pushed the
Canadian dollar (CAD=D4: ) as low as C$1.0207 to the U.S. dollar,
or 97.97 U.S. cents, almost matching the near-three week low
hit in the previous session. The currency subsequently bounced
back a bit.

The reports portray an economy that is growing more slowly
than in the first half of the year and is free of inflationary
pressures, cementing the view that the Bank of Canada will
leave its benchmark lending rate at 1 percent until the second
quarter of 2011.

“As much as the market is scrambling and adjusting to the
reality of softer inflation in November, the Bank of Canada is
probably sitting there quite pleased with itself for not having
hiked (rates) recently and for not projecting any intention
either in the next little bit,” said Eric Lascelles, chief
macro strategist at TD Securities.

The consumer price index edged up 0.1 percent in November
for an annual rate of 2 percent. That was down from 2.4 percent
annual inflation in October and below the market forecast of
2.2 percent.

Statistics Canada attributed the year-over-year
deceleration to energy, food and clothing prices.

The core inflation rate most closely watched by the Bank of
Canada, which strips out energy and other volatile prices, was
unchanged on the month and was up 1.4 percent on the year,
compared with 1.8 percent in October.

OCTOBER JUST A BLIP

The results suggest the surprising jump in the October
inflation rate was an anomaly.

“Essentially what this report does is reverses any concern
that may have built up a month ago,” said Doug Porter, deputy
chief economist at BMO Capital Markets.

The Bank of Canada kept interest rates on hold this month
for the second consecutive time after raising borrowing costs
three times between June and September. It sees fourth-quarter
inflation averaging 2.1 percent, just a notch above its 2
percent target.

“If anything, today’s report leaves them on track to
possibly undershoot their call, which I don’t think many would
have dared look for after last month’s report,” Porter said.

Analysts surveyed by Reuters earlier this month predicted,
on average, that the central bank would not hike rates again
until the second quarter of next year.

Markets were pricing in a 89.7 percent probability of rates
staying on hold in January, up slightly from 89.1 percent
before the report, according to overnight index swaps tracked
by Reuters. (BOCWATCH: )

MIXED SIGNALS

Retail sales in October provided mixed signals on the mood
of Canadian shoppers, who paced the economic turnaround a year
ago. Sales jumped 0.8 percent in October, beating forecasts,
but excluding the effects of a surge in gasoline prices, they
slipped 0.1 percent.

Sales actually fell 0.2 percent volume terms, which could
dampen monthly gross domestic product figures.

Derek Burleton, vice president and deputy chief economist
at TD Economics, said he expects consumer spending to show
resilience in the rest of the fourth quarter and expand by 3
percent, annualized. “This implies a good, but not great,
holiday year for retailers, who continue to face intense price
competition.”

Worries about personal finances and a reluctance to spend
on big-ticket items could spell continued slowdown in consumer
spending. The Conference Board’s consumer confidence index
slipped 2.6 points in December to 81.The confidence index fell
in seven out of 12 months this year.
(Additional reporting by Howaida Sorour, Ka Yan Ng and John
McCrank; editing by Jeffrey Benkoe and Peter Galloway)

WRAPUP 1-Canada inflation, spending data point to low rates