Lower gasoline prices pulled Canada's annual inflation rate in January down to 1.4% from 2.0% in December, reinforcing market expectations that imminent interest rate hikes are off the table.

The market had forecast the rate would be 1.5%. January marks the second time in the last 12 months that the rate has slipped below the Bank of Canada's 2.0% target.

The central bank has raised rates five times since July 2017, though Governor Stephen Poloz indicated last week that while interest rates need to move up into a neutral range, he was in no rush to resume monetary tightening.

The bank is due to announce its next interest rate decision on March 6 and market largely expects no change.

Energy costs declined 6.9% in January from the previous year, driven by a 14.2% plunge in gasoline prices. That helped drive the transportation component down 0.4%, its first 12-month decline since July 2016, Statistics Canada said on Wednesday.

Adjusted to remove gasoline, the annual inflation rate was 2.1%.

Service costs were up 2.7%, though down from 3.5% in December as transitory pressures eased, Statistics Canada said. Month-to-month decreases in air transportation and travel tours followed the end of the holiday travel season.

The Bank of Canada's three core inflation measures were unchanged, with CPI common, which the bank says is the best gauge of the economy's underperformance, at 1.9%.

The USD/CAD continues to consolidate below 1.3202, the 14-day exponential moving average. Pair finds support at 1.3110. The next important support level is 1.3052, 38.2% Fibo of 2017-2019 rise. A close below 21-day Bolli by 1.3080 may add to bearish momentum.

Lower gas prices pulled Canada's annual inflation rate in November down to 1.7%, the first time in 10 months it has been below the Bank of Canada's 2.0% target, underscoring market expectations that imminent interest rate hikes are off the table.

The market had forecast the annual rate would fall to 1.8% from 2.4% in October. November's rate matched the 1.7% seen in January 2018.

The Bank of Canada, which has raised rates five times since July 2017 as the economy strengthened, said earlier this month that economic data heading into the fourth quarter had been weaker than expected.

The central bank is due to announce its next interest rate decision on January 9 and markets expect no change.

Statistics Canada said on Wednesday that gasoline prices fell by 5.4% from November 2017 on lower crude prices and overall energy costs dropped by 1.3% over the same period. In both cases, it was the first year-over-year decline since June 2017.

It also noted that the Bank of Canada's three core inflation measurements came in at 1.9%, the first time they have all been below 2.0% since June 2018.

The drop in the overall annual rate was the sharpest in absolute terms since May 2012, when lower gas prices pulled it down to 1.2% from 2.0% in April.

The Bank of Canada kept interest rates on hold on Wednesday as expected and suggested the pace of future hikes could be more gradual.

The central bank, which has lifted rates five times since July 2017 as the economy strengthens and reaches capacity, repeated that more monetary tightening would be needed to help meet its 2.0% inflation target.

But it noted downward revisions by Statistics Canada to growth figures, together with recent macroeconomic developments, "indicate there may be additional room for non-inflationary growth." This is a sign the economy might not be as close to capacity as previously thought.

Bank of Canada Governor Stephen Poloz on Thursday said the economy was weaker than forecast and predicted low oil prices would cut growth, comments likely to reinforce market expectations that the pace of future rate hikes will ease off.

Poloz, speaking a day after the central bank kept interest rates on hold, repeated that more tightening would be needed to keep inflation on track but added the pace would be decidedly data-dependent.

"It is fair to say that the data released since our October Monetary Policy Report have been on the disappointing side ... the economy has less momentum going into the fourth quarter than we believed it would," Poloz said.

Much of the bank's discussion ahead of the interest rate announcement on Wednesday had been focused on oil, he said. Prices for crude, one of Canada's main exports, are sinking amid a supply glut and this is hurting Alberta, the western province which is home to the domestic industry.

"It is already clear that a painful adjustment is developing for Western Canada and there will be a meaningful impact on the Canadian macroeconomy," said Poloz.

The sector could suffer further harm if trade tensions between the United States and China cut demand, he added.

A slump in oil prices badly hit the economy in 2015, and the damage this time round should be less on a dollar-for-dollar basis, Poloz said, given consolidation in the energy sector since 2014.

Poloz noted that the economy had been operating near capacity for a year, unemployment stood at its lowest level in decades and inflation was on target.

It was natural the bank would seek to raise rates from their current low levels, he said, while acknowledging the potential danger posed by homeowners who had borrowed heavily. is an independent macroeconomic consultancy with thousands of subscribers all over the world. We provide fundamental research to help our clients make better investing decisions. Our subscribers should expect to get access to:

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