OTTAWA (Reuters) - Annual inflation rate sped past expectations to 3.1 percent in June from 2.2 percent in May after the biggest yearly surge in gasoline prices since Hurricane Katrina, Statistics Canada said on Wednesday.

June marked the first time since September 2005 that inflation rose past the central bank's target range of 1-3 percent. The Canadian dollar rose slightly after the report.

But the Bank of Canada, which last week forecast inflation would peak at 4.3 percent early next year, has signaled it will not try to curb the rampant price growth through interest rate hikes because it expects the underlying price trends to stay in check.

The June results proved it right. Core inflation -- which strips out volatile items like gasoline and food -- was unchanged from May at a tame 1.5 percent.

Excluding only gasoline, consumer prices rose 1.8 percent.

"On a core basis the data is not suggesting that we're getting a significant spillover from the higher energy prices," said Paul Ferley, assistant chief economist at Royal Bank of Canada.

"I think (the Bank of Canada) will take some reassurance from the fact that we're not seeing significant spillover, and given ongoing concerns about growth, that will probably result in them staying on the sidelines holding the overnight rate steady," he said.

The Canadian dollar moved to C$1.0098 to the U.S. dollar, or 99.03 U.S. cents, from its pre-data level around C$1.0100 to the U.S. dollar, or 99.01 U.S. cents. Bonds were flat across the curve.

Bank of Canada Governor Mark Carney has emphasized that the oil-induced inflationary spike would not last long, and a rate hike could stunt the economy's recovery amid expectations it will grow this year at the slowest pace since 1992.

The bank left rates unchanged at 3 percent last Tuesday, for the second straight time.

FOOD INFLATION

The monthly rise in the total consumer index for June was 0.7 percent and the core index inched up 0.1 percent.

Markets had expected total inflation of 0.5 percent in the month and an annual rate of 2.9 percent. They expected a core rate of 0.1 percent monthly and 1.6 percent annually.

Gasoline prices in June were about 27 percent higher than in June 2007, the biggest leap since oil markets were disrupted by Hurricane Katrina in 2005, Statscan said.

"Again most of the story was of course gasoline and everything related to oil including airfares," said Doug Porter, deputy chief economist at BMO Capital Markets.

"We are also starting to see some real upward pressure on food prices which Canada was late to the game at."

Signs of incipient food inflation were also evident in the report with a 3 percent rise in the cost of store-bought food year-on-year and a 12.3 percent jump in the price of bakery products.

Mortgage interest costs surged 9 percent in the same period, largely due to higher new housing prices, and air transportation rose 14.3 percent.

However, car dealers chopped prices 8.4 percent to lure consumers who appear to be starting to seek alternative means of transport as they feel the pinch from gasoline prices.

(Additional reporting by Frank Pingue in Toronto; Editing by Frank McGurty)

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