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Wednesday, February 22, 2006

Inflation quickened to a 2.8-per-cent annual rate in January as consumers paid more for gasoline at the pumps, with prices rising most in Alberta, Statistics Canada said Wednesday.

The rate accelerated more than expected after a 2.2-per-cent year-over-year increase in December.

The report confirmed expectations that Canadian interest rates are headed higher -- though not much higher.

"Inflation is steady, and is consistent with the Bank of Canada continuing to raise rates at a modest pace," said Jennifer Lee, an economist at BMO Nesbitt Burns, in a morning note. "We expect two more rate hikes, topping out at 4 per cent this spring."

Prices rose last month because of increases in gasoline — which was 19.2 per cent higher than a year ago — along with natural gas, the purchase and leasing of cars, and homeowner's replacement cost, Statscan said. Those gains were moderated by lower prices for car insurance premiums, computer equipment and supplies, and traveller accommodation.

Among provinces, annual inflation jumped 4.1 per cent in Alberta, the biggest gain in the country. It rose the least in Iqaluit, at 1.5 per cent.

Analysts polled by Bloomberg News had expected a 2.6-per-cent gain in the annual national rate.

Core inflation, which strips out the eight most volatile components of the consumer price index, rose 1.7 per cent in January after a 1.6-per-cent increase in December.

In January, gasoline prices rose in all provinces and ranged from 13.7 per cent in British Columbia to 24.5 per cent in Prince Edward Island, the government agency said.

Natural gas prices were 26 per cent higher than in January, 2005. All provinces posted increases, led by gains in Ontario and Alberta.

On the flip side, car insurance premiums were 2.6 per cent lower than a year ago, while computer equipment and supplies plunged 15.7 per cent.

On a monthly basis, consumer prices rose 0.5 per cent, after three months of decline, Statscan said.

"Increases in the prices of gasoline, natural gas and fresh vegetables were offset very slightly by lower prices for travel tours, and men's clothing," Statscan said.

Gasoline prices rose 6.5 per cent between December and January, while fresh vegetables climbed 12.4 per cent, led by a 39.6-per-cent leap in the cost of tomatoes.

Here are January inflation rates in Canadian cities, with the December number in parentheses:

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