FXStreet (Delhi) – Research Team at Nomura, suggests that Canada’s headline CPI decreased 0.5% month-on-month in December, below market expectations, but the base effect brought the year-on-year rate to 1.6%. Key Quotes “Core CPI inflation, excluding the volatile elements and the impact of indirect taxes, decreased0.4% m-o-m, weaker than expected, taking the year-on-year rate lower to 1.9%. This is the first time since July 2014 that core inflation is below 2%. Inflation excluding food and energy eased to 1.7% from 1.8%. On a month-on-month basis, six of the eight main categories saw price declines. On a year-on-year basis, the increase was again driven by food prices (+3.7% y-o-y) – mainly fresh fruit (+13.2% y-o-y) and fresh vegetables (+13.3% y-o-y) – and shelter (+1.1% y-o-y) owing to an increase in property taxes and homeowners’ home and mortgage insurance (+8.9% y-o-y). Overall, the report shows that inflationary pressures in December remained contained as suggested by the stable inflation rate excluding food and energy. The change in headline inflation is mainly the result of a moderation in the y-o-y change in the energy component or base effect. On the flip side, the moderation in core inflation seemed to be due to a moderation in clothing and footwear prices. Interestingly, services price inflation moderated slightly further, likely a result of the wider output gap. We believe inflation is not the main source of concern for the Bank of Canada (BoC) currently, as the Bank remains focused on non-energy exports and the effects of the renewed decline in oil prices on the economy. Moreover, it is clear following this week’s policy meeting the BoC is likely to keep its policy rate unchanged, as long as the coming increase in fiscal spending is expected to stimulate the economy meaningfully.” For more information, read our latest forex news.