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Inflation reading forecast to dip on lower gasoline prices

A drop in gas prices was a welcome relief for consumers in April.

Gregory Bull/The Associated Press

Sometimes it's hard to remember that prices at the gas pump can and do fall, but they did last month, taking inflation along for the ride.

Economists expect Statistics Canada to report this week that the annual inflation rate dipped below 1 per cent in April, to somewhere between 0.5 per cent and 0.8 per cent.

"Canadian inflation looks to slow back below 1 per cent in April due largely to an unseasonal decline in gasoline prices," said Benjamin Reitzes of BMO Nesbitt Burns.

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"The big decline in the headline would leave inflation well below the Bank of Canada's 1-per-cent forecast for all of [the second quarter], though both May and June should see some acceleration," he added.

The so-called core rate of inflation, which strips out volatile items and helps guide the central bank, is expected to be 1.2 per cent on an annual basis when Statistics Canada releases its report Friday morning.

The Bank of Canada is widely expected to hold its benchmark rate at 1 per cent until late next year or early 2015, given the economic outlook and tame inflation.

"The persistently soft inflation readings are consistent with the wide output gap and strong [Canadian dollar]," said Mr. Reitzes.

"Until either of those factors dissipates, price pressures are likely to remain muted, leaving little need for the bank to come off the sidelines."

Tame prices are, of course, good news for families juggling record debt levels amid an uncertain economic outlook.

"Weak inflationary pressures have been a welcomed relief for consumers, providing them with a boost to purchasing power in an environment of subdued wage growth and slowing economic activity," said CIBC World Markets.

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"That theme was likely seen yet again in April, when a drop in gasoline prices triggered a sharp deceleration in inflation. Subdued price pressures elsewhere including food and mortgage interest costs likely also weighed on the headline."

Editor's note: This article has changed from the original version.

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More


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