Canada’s annual inflation rate fell slightly in February, giving the Bank of Canada room to keep interest rates low over the next few months, economists say.

Statistics Canada said Friday its consumer price index edged down one-tenth of a point to 2.2 per cent in February, with rising energy and gas prices keeping inflation just above the Bank of Canada’s ideal two per cent target.

The core inflation rate, which excludes volatile items such as gas and food, fell to 0.9 per cent — its lowest level since the government started keeping records in 1984. Economists had predicted an annual core rate of 1.1 per cent and annual inflation to remain at the January level of 2.3 per cent.

It all means the country’s central bank might take its time when it comes to raising interest rates, said CIBC World Markets economist Emanuella Enenajor.

“These (inflation) numbers certainly make it less likely that a May rate hike could happen, we do have to admit,” she said.

“Such a soft core number suggests there’s less pressure for the Bank of Canada to really start hiking rates aggressively so it gives it a little more leeway.”

She said CIBC is for now sticking with its prediction that Canadians will see rates go above the current one per cent in May and that they will end up at two per cent by the end of the year.

Canada’s economic growth surpassed expectations in the last half of 2010 and the Bank of Canada may want to get ahead of any resulting spike in prices by raising interest rates and cooling lending conditions, she said.

Doug Porter, deputy chief economist at BMO Capital Markets said he believes the central bank is likely to stick with lower rates for the short term.

“Both headline and core inflation have eased since the start of the year, at least partly thanks to the lofty loonie,” he wrote in a note to investors, pointing out that Canada’s core inflation rate is lower than that of the U.S. and rest of the world.

“This is set to reverse next month, as Canada gets with the global program, but the low starting point is very favourable. Suffice it to say that this keeps the pressure well off the Bank of Canada to get back in tightening mode any time soon.”

Enenajor said the March inflation rate will likely depend on oil price movement during the rest of the month.

“However, expect both the annual headline and core rate to move higher in March on a year-on-year basis,” she said.

Prices were higher in February in six of the eight major categories tracked by the agency, but items like women’s clothing, footwear and travel tours cost less than a year earlier.

On a month-to-month basis, consumer goods were 0.3 per cent more expensive last month than in January, mostly due to higher energy and gasoline prices. Canadians paid 10.6 per cent more for energy during the year leading up to February, after posting a nine per cent increase in January.

Gas prices soared 15.7 per cent last month, on top of the already recorded 13 per cent increase in the 12 months leading up to January.

On a regional basis, Nova Scotia remained the province with the highest inflation rate at 3.4 per cent. Many people in that province use oil and other fuel to heat their homes.

Alberta continued to enjoy the most stable prices, with an inflation rate of 1.2 per cent.

Drivers in every province except Manitoba faced double-digit price increases for gasoline on a year-over-year basis. The price at the pumps was up 15.7 per cent from a year earlier.

The Canadian Press http://www.therecord.com/news/business/article/503435–lower-inflation-in-february-likely-to-keep-interest-rates-low

Current Mortgage Rates

5 Year Fixed 3.74%* (45 day rate hold)

3 Year Variable Prime – .85%

5 Year Variable Prime – .80%

Lenders Prime Rate: 3.00%

No changes in the rates to note however we do want to share this article with you.  Flaherty: Loonie will stay at par with U.S. thanks to “sound” fiscal situation

·         Canadian 5 year bond yields markets +.03bps to 2.53. The spread (based on the new 5 year rate published rate of 3.99%) is mid comfort zone at 1.46.

The rate of return on your bond, can be read through a yield curve, If the increase in bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise. Currently lenders are looking for a spread between 1.35 and 1.55

Your Mortgage Team

Tom and Mandy Szucs

Mandy Szucs, AMP | Mortgage Broker

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Flaherty: loonie will stay at par with U.S. thanks to “sound” fiscal situation

By Lee-Anne Goodman, The Canadian Press

WASHINGTON – The Canadian loonie will hover at parity with the U.S. dollar for some time to come, and deservedly so thanks to Canada’s economic strength, Finance Minister Jim Flaherty said Wednesday.

“This is a new world,” Flaherty told reporters after speaking about controlling debt at a think-tank discussion at the Woodrow Wilson International Center for Scholars in the U.S. capital.

The high Canadian dollar reflects a “sound fiscal situation” in Canada, he added.

“It is unreasonable, given those fundamentals, for anyone in Canada to expect the Canadian dollar to go back to the days when it was significantly devalued vis-a-vis the U.S. dollar…. it makes sense for the Canadian dollar to be much closer to the U.S. dollar that it was for some years.”

The Canadian dollar hit a two-and-a-half year high earlier Wednesday of $0.9848, or US$1.0154. It closed the day at $0.9869 to the U.S. dollar, or US$1.0133. The loonie’s been at or near parity with the U.S. currency for weeks, a state of affairs that causes headaches for Canadian exporters who get paid in American dollars.

That’s why Ottawa is throwing a lifeline to exporters and manufacturers by lowering corporate taxes, reducing tariffs and extending an accelerated capital cost write-off, Flaherty said.

The capital cost measure allows companies to accelerate the rate at which they can write off investments. It was scheduled to expire in 2011.

The finance minister spoke to the media after an event that proved something of a Canadian love-in. Those in attendance included Gary Doer, the Canadian ambassador to the U.S., and astronaut Julie Payette, who recently signed on for an eight-month stint as a public policy scholar at the Woodrow Wilson Center.

“We look at Canada as a good example of what we ought to do on several different fronts,” David Biette, the director of the centre’s Canada Institute, told Flaherty.

The finance minister also said Canada would put global financial standards in place well before deadlines imposed by the Basel Committee of international bank regulators.

The new regulations, dubbed Basel Three, are supposed to be in place by 2019. But Flaherty said Canada will move much faster than that, adding the new rules aren’t onerous for Canadian financial institutions since they already practise so many of them.

The new standards would require banks to prepare for economic recessions by holding onto more cash and assets that can be easily sold off. They aim to ensure taxpayers aren’t on the hook when a financial institution fails amid a global financial meltdown.

“It’s an advantage for our financial system to move more quickly to the Basel III standards,” Flaherty said. “It creates more business confidence. It creates more confidence outside of Canada for direct investment in Canada.”