By Chris Fournier Jan. 20 (Bloomberg) -- The Canadian dollar extended a drop versus its U.S. counterpart as a government report showed the nation’s inflation rate fell more than economists anticipated, weakening the argument for higher interest rates. Consumer prices fell 0.6 percent in December, compared with an advance of 0.1 percent the previous month, Statistics Canada said today in Ottawa. The rate climbed 2.3 percent from a year earlier. The median forecast of 23 economists in a Bloomberg News survey was for a 0.2 percent monthly drop and a 2.7 percent annualized increase. “It was a below consensus release on CPI on both the core and the headline,� said Camilla Sutton, head of currency strategy at Bank of Nova Scotia, by phone from Toronto. “That implies there is decreasing inflationary pressure in Canada and takes pressure off the Bank of Canada.� Scotia Capital’s forecast is for the Canadian dollar to weaken to C$1.02 by the end of the first quarter. The loonie, as the Canadian currency is also known, depreciated 0.4 percent to C$1.0137 per U.S. dollar at 7:16 a.m. Toronto time, paring its weekly advance to 0.9 percent. One Canadian dollar buys 98.65 U.S. cents. The Bank of Canada raised its inflation forecast for this year in a quarterly monetary report this week. Inflation will average 2.2 percent this quarter and 1.5 percent from April to June, faster than October forecasts of 1.9 percent and 1 percent, the Jan. 18 report said. --Editor: Dave Liedtka To contact the reporters on this story: Chris Fournier in Halifax, Nova Scotia, at cfournier3@bloomberg.net; To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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