Canada's inflation accelerated less than economists expected last month, remaining below the central bank's target due to lower costs for mortgage interest, natural gas and clothing. Prices rose 1.3 percent in December from a year ago, and fell 0.3 percent from November, Statistics Canada, said today in Ottawa. Economists predicted that the annual inflation rate would be down to 1.6 percent from November 1 percent, and prices fall 0.1 percent on a monthly basis, according to the median estimates of Bloomberg News survey. Bank of Canada Governor Mark Carney yesterday kept its rate benchmark interest low percent record of 0.25, and said he plans to keep it there through June if the outlook for prices deviate from their forecast. The bank also said that "excess supply remains considerable" and inflation returns to target policy makers "of 2 percent through the third quarter of next year. "For the Bank of Canada, this report highlights the lack of inflationary pressures in the economy," said Sal Guatieri, senior economist at BMO Capital Markets in Toronto. "It gives the bank ammunition to maintain low interest rates later this year." The dollar Canadian weakened 1.1 percent to C $ 1.0433 per U.S. dollar at 7:13 am in Toronto, from C $ 1.0314 yesterday. Falling prices of natural gas costs declined 31 percent in December from a year ago, while Statistics Canada's index of mortgage interest costs fell by 4.9 percent. Clothing and footwear costs fell 0.8 percent. The rise in inflation last year was led by a 26 percent increase in gasoline costs. Before low gasoline prices helped push inflation below zero for four consecutive months through September, the longest period since 1953. The call core inflation, which excludes gasoline and seven other volatile items, was 1.5 percent on an annual basis in December, unchanged from the previous month. On a monthly basis, core inflation fell 0.3 percent. The Bank of Canada said yesterday that underlying inflation has been "slightly higher than expected in recent months. "Economists predict that the annual inflation rate of 1.7 percent would be based on the median of 26 estimates, and the fall 0.2 percent on a monthly basis. The inflation rate was 0.3 percent for all of 2009, the lowest level since 1994, Statistics Canada said.

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