Canada’s inflation rate slowed more than all economists forecast in June as car makers offered larger discounts, hotel rates declined and gasoline prices eased. The consumer-price index rose 3.1 percent from a year earlier, Statistics Canada said today in Ottawa, following a May increase of 3.7 percent that was the fastest since March 2003. The lowest prediction in a Bloomberg survey of 24 economists was 3.4 percent, with a median forecast of 3.6 percent. The core inflation rate, which excludes eight volatile items such as gasoline, unexpectedly slowed to a 1.3 percent pace in June from May’s 1.8 percent. Economists forecast it would accelerate to 1.9 percent. Bank of Canada Governor Mark Carney said this week that inflation will exceed 3 percent, the top of his target range, in “the short term,” while keeping his key interest rate at 1 percent to foster an economic recovery. Policy makers are weighing rising prices against the risks posed by Europe’s debt crisis and slow U.S. growth. “The underlying inflationary pressures are stronger in Canada than they are in the United States,” said Paul Fenton, chief economist at Caisse de Depot et Placement du Quebec, Canada’s biggest pension-fund manager and a former Bank of Canada economist, before the report. “Starting to raise interest rates in the fall is the most likely outcome,” he said, adding the central bank “will go at a measured pace.” On a monthly basis, consumer prices fell 0.7 percent in June and the core measure fell 0.6 percent. Economists forecast consumer prices would drop 0.2 percent from May and that core prices would be unchanged. Gasoline Prices Gasoline prices fell 3.7 percent on the month in June, slowing the year-over-year advance to 28.5 percent from May’s 29.5 percent, Statistics Canada said. The main factor behind the decline in the annual inflation rate was a 3.1 percent drop in passenger vehicle prices that was due to “larger discounts given by some manufacturers,” the report said. Traveler accommodation prices fell 2.9 percent in June from a year earlier, compared with a May gain of 3.3 percent. The Canadian dollar reached the strongest in more than three years yesterday on speculation the Bank of Canada will increase its policy interest rate this year. The central bank’s statement at its July 19 rate decision dropped the word “eventually” from a phrase about when policy makers will move. To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net. To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net; Christopher Wellisz at cwellisz@bloomberg.net.

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