OTTAWA - Consumer prices in Canada remained stubbornly hot last month, driving the loonie higher on expectations the Bank of Canada may be on interest rate alert.

The loonie peeked above the 99-cent US mark Friday morning after Statistics Canada reported that inflation had not dropped nearly as much as expected in February.

The headline inflation number was not particularly alarming at 1.6 per cent, but it was the core index's move above the central bank's target of two per cent that caught the currency market's attention, lifting the loonie 0.36 cents to 99.01 cents US.

The core, which excludes volatile items like energy prices, rose one-tenth of a point to 2.1 per cent, the highest it has been since December 2008. But many economists say bank governor Mark Carney will wait for more information before pulling the trigger on interest rates, particularly since the underlying details tended to undercut the final numbers.

"One month does not a trend make," said TD Bank economist Millan Mulraine.

"Core inflation appears somewhat toasty, but there are special factors that have driven this report... and that has to do with the Olympics."

Travel services soared 17.9 per cent during the month, with hotel accommodation in British Columbia spiking 64.1 per cent higher.

Except for these increases, likely a one-time event, core would have come in close to the consensus call of 1.7 per cent, economists noted.

But there was also evidence of "stickiness" in the numbers that will cause the central bank to pay attention, including that auto prices are up 3.5 per cent over last year, whereas they were down 5.9 per cent a year ago.

"Even looking beyond the special factor of travel costs due to the Olympics, core inflation remains surprisingly sticky in Canada, with neither the recession nor the resurgent loonie enough to keep core prices down," noted Douglas Porter, deputy chief economist with BMO Capital Markets.

Last spring, Carney told the world he would keep the bank's policy rate at the so-called "lower bound" of 0.25 per cent until this July unless something unexpected happened to inflation.

Porter said February's numbers were unexpected, but possibly not enough to convince the bank it has a problem just yet.

"Rate hikes are coming up fast on the horizon," he said, but July still looks like the best guess at Carney's intentions.

That would still be well ahead of the U.S. Federal Reserve, which many expect to stay at near zero until 2011 -- and markets have already started pricing rate hikes in by lifting the dollar towards parity.

Adding pressure on interest rates is that the economy is outperforming expectations. More evidence came with Friday's release of retail sales, showing a strong 0.7 per cent advance in January. But again the headline came with an asterisk -- Statistics Canada said the rush to the stores was partly to beat the deadline on the now expired federal home renovation tax credit.

Buying at building and outdoor home supplies stores rose a whopping 7.4 per cent.

The unexpectedly strong inflation numbers stemmed in part from the base effects of falling oil prices last year and temporary factors, which won't worry the central bank.

On a month-to-month basis, overall prices were 0.4 per cent higher in February than they were in January, and core inflation advanced 0.7 per cent.

The gasoline price rise did moderate in comparison to last year, but was still 15.3 per cent higher than in February 2009.

But there was also a recent firming of price increases that may cause the central bank concern.

Aside from higher prices for purchasing and leasing autos, car insurance rose 7.9 per cent. Also higher in February were food prices, personal care, household operations and for recreation, education and reading.

In contrast, the cost of servicing a mortgage fell 5.8 per cent as a result of record-low interest rates, while clothing and footwear shed 2.6 per cent.

On a monthly basis, five of eight components that go into the inflation index rose, including food, household operations, furniture, alcohol and tobacco, education and reading, clothing and footwear, and recreation.

Regionally, annual inflation was down in all provinces except British Columbia.