OTTAWA – Inflation in Canada appears to have entered a period of stability near the Bank of Canada’s two per cent sweet spot, providing little impetus for interest rate hikes any time soon.Statistics Canada said Friday annual inflation edged up one-tenth of a point to two per cent in April, while the core, underlying price measure rose two-tenths to 2.1.The big surprise is that energy costs — the major cause of volatile price fluctuations for several years — all but disappeared as a driver in April.Spurred by fluctuations in energy and gasoline prices, the inflation rate has dipped as low as one per cent in June 2010 an climbed as high as 3.7 per cent last May.For the first time since October 2009, energy costs in April rose at a lower rate than the overall index with a tiny 1.1 per cent increase from last year.Statistics Canada noted that gasoline had been rising in recent months, pushing April’s gasoline index to its highest level since July 2008, but that on a year-to-year basis, the increase was the smallest since September 2010. That’s because gasoline prices hit near record levels last April, it said.”It does look like two per cent is doable this and probably next year,” said Bank of Montreal economist Doug Porter.”If find it interesting that there is some underlying strength in core inflation, but I don’t think it’s enough to be concerned about at this stage.”Porter noted the bump in gasoline in April from March, but points out that is already yesterday’s news as this month has seen pump prices drop along with global oil prices, a turn that will be reflected in the May data.TD Bank’s Leslie Preston said Bank of Canada governor Mark Carney can make an argument for a modest hike in interest rates, given that the overnight rate has sat at the super-stimulative one per cent level since September 2010.For the second consecutive month, average wage increases are now running slightly above inflation at 2.3 per cent — although in Ontario they are at 0.7 per cent. As well, Canada has enjoyed the best two months of employment growth in three decades, with about 140,000 jobs added in April and May. Other economic data also point to growth in the first quarter.But the elephant in the room on any discussion on interest rates is the turmoil going on in Europe and that Canada could again be sideswiped by a financial crack-up outside its borders.”With so much uncertainty still looming in the global economy, the Bank can afford to take its time, and undertake only modest hike rates over the next two years,” said Preston.Many analysts still believe the central bank won’t move until at least early next year.The commodity-sensitive loonie fell 0.17 of a cent to 97.96 cents U.S., its lowest close since Jan. 13.Economist Erin Weir of the United Steelworkers advised Carney to keep his focus more on the exchange rate than inflation.”While the loonie trades for about 98 U.S. cents on [...] Continue Reading…

Article source: http://ca.news.yahoo.com/canadas-inflation-rate-edges-2-0-prices-rise-123606030--finance.html

Adam Posen, the Bank of England arch-dove, is to step down from the Bank’s interest rate setting committee at the end of the summer, undermining hopes of further monetary easing to bolster the ailing UK economy.Posen has refused to apply for a second term on the monetary policy committee after accepting a job as boss of the US economic thinktank, the Peterson Institute.For a long time he was a lone voice on the committee arguing for a boost to the £200bn intervention made in the immediate aftermath of the Lehman’s collapse in 2008.The prospect of further quantitative easing this year appeared to be strong after the UK fell into a second recession in three years and indicators showed business confidence and household finances on the decline.Posen, a US academic, voted against an increase in the £325bn in bond purchases by the Bank of England at the MPC’s last meeting after he and his eight colleagues were spooked by a rise in inflation during March and some business surveys that showed a more upbeat picture than official data.But he has since indicated that he would renew his call to print more electronic money after a series of troubling forecasts.The Treasury, which appoints external members to the committee, said it would advertise shortly for a role that is open to all senior economists.The MPC’s last appointment was Goldman Sachs economist Ben Broadbent, who arrived last summer. The Treasury was criticised at the time for failing to find a woman candidate. The committee, which was founded in 1997 by former chancellor Gordon Brown as an independent bulwark against the interest rate setting whims of the Treasury, always had at least one woman until the departure of Kate Barker in 2010.Sir Mervyn King, the bank’s governor, said Posen had made an “outstanding contribution” during his three years on the MPC and wished him well in his new role.But during most of that time the two men have been at loggerheads over how to adjust monetary policy at a time of government cuts, tax rises and an unstable situation in the eurozone.Posen made it clear in a series of speeches – backed up by his voting record on the MPC – that it should move more quickly to support the economy.While he never accused King by name, he believed the governor and his supporters underestimated the slow pace of recovery and the negative effect of the government’s policies on investment and spending.It was the third time the governor was accused of being slow to react to events, after he waited until the last moment to rescue Northern Rock, triggering the first bank run in more than 100 years. King was also accused by former MPC member David Blanchflower of being slow to cut interest rates in 2008 when the Lehman’s crisis was looming.Jonathan Portes, head of the National Institute of Economic and Social Research, said Posen would be much missed.”He has been a sane and sensible voice on the MPC [...] Continue Reading…

Article source: http://www.guardian.co.uk/business/2012/may/18/bank-of-england-posen-to-step-down

OTTAWA (Reuters) – Inflation in Canada was slightly higher than expected in April, providing the Bank of Canada with more reason, if the European crisis doesn’t undermine the economy, to launch the interest-rate hike it has hinted at recently.
On an annual basis the overall inflation rate rose to 2.0 percent in April from 1.9 percent in March, Statistics Canada said on Friday. The core rate, which excludes volatile items, climbed to 2.1 percent from 1.9 percent.
“From a strictly domestic standpoint, I think it does advance the case for the bank raising rates,” said BMO Capital Markets deputy chief economist Doug Porter.
However, he said that the euro-zone debt crisis is an important caveat: “Having said that, the bank also has to, of course, deal with the reality of a further flare-up in the European situation and I think that’s going to overwhelm domestic considerations.”
The median forecast in a Reuters survey of analysts had been for both inflation measures to stay at 1.9 percent. Only five of 24 analysts had expected the overall rate to rise, and none had foreseen a core rate as high as 2.1 percent.
Though several data points have bolstered the case for the central bank to raise rates, recent economic figure have not all been positive.
The latest reports for manufacturing, jobs, trade, housing and wholesale trade have been strong, while February gross domestic product and retail trade were weak.
In the past month, the bank has said several times it may have to withdraw stimulus from the economy.
“If the Bank of Canada at some point decides it should raise interest rates because of financial stability issues, the fact that inflation is at or slightly above target gives them enough reason to do so,” Laurentian Bank chief economist Carlos Leitao said.
“It would have been a problem if inflation starts to fall. The bank would have a hard time raising rates, but with inflation staying at, or slightly, above target, then if they do decide to move for other reasons they can.”
On a monthly basis, both total and core inflation were 0.4 percent in April.
A 3.2 [...] Continue Reading…

Article source: http://news.yahoo.com/canada-april-inflation-surprise-rise-2-0-percent-123218273--business.html

BRUSSELS/LONDON (Reuters) – European officials are working on contingency plans in case Greece bombs out of the euro zone, the EU’s trade commissioner said on Friday, while Berlin said it was prepared for all eventualities. German Finance Minister Wolfgang Schaeuble, one of Greece’s harsher critics, said market turmoil …

Article source: http://news.yahoo.com/boes-posen-next-peterson-director-sources-140434098--business.html