(Updates with details
By Luke McCann
OTTAWA, May 20 (Reuters) - Canadian inflation was tamer than expected in April, despite still high oil prices, and analysts said that increased the likelihood that the Bank of Canada could sit on the sidelines for a few months longer.
Statistics Canada said on Friday that inflation rose to 2.4 percent in the year to April, matching forecasts, from 2.3 percent in March, due mainly to an increase in gasoline prices.
But it was an easing in the Bank of Canada's closely watched core index that caught the market's attention.
That index, which strips out the prices of energy and some foods, rose 1.7 percent in the year to April, lower than the 1.9 percent rate analysts had predicted. Core prices fell 0.2 percent in April from March -- the first monthly decline since January -- against an increase of 0.3 percent in March.
"This is really quite a sudden turnaround in the core," said David Ebata, managing analyst at Thomson IFR in Boston. "It's nice to see the core rate going down even though the oil price scenario is relatively high."
The data weighed on the Canadian dollar but lent support to bond prices, which welcomed the implication that the central bank need not rush to hike interest rates.
The Canadian dollar edged down to C$1.2603 to the U.S. dollar, or 79.34 U.S. cents, from C$1.2560, or 79.62 US cents, before the data was released.
The central bank next sets interest rates on Tuesday and is expected to hold its overnight rate steady at 2.50 percent. The bank has repeatedly said it will need to raise interest rates eventually.
"The Bank of Canada has a fair amount of latitude to remain on the sidelines in order to assess the adverse impact of the past appreciation of the currency on the economy," said Sal Guatieri, senior economist at Bank of Montreal.
The bank targets inflation at the mid-point of a 1 to 3 percent range.
Homeowners' replacement costs, restaurant meal prices, property taxes and fuel oil prices had also contributed to the increase in April's annual rate, Statscan said.
Gasoline prices were up 15.3 percent from April 2004, Statscan said in its daily bulletin.
Consumer prices rose 0.3 percent from March to April, largely due to more expensive gasoline, electricity and fresh vegetables.
"Overall, even if you look at headline inflation, there's virtually no risk of inflation here in Canada," said Andrew Pyle, senior analyst at Scotia Capital.
(Additional reporting by Ka Yan Ng in Toronto)