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Canada Preview: CPI seen rising 1.7% YoY in December

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 22, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Mumbai) - Statistics Canada will release Canada’s CPI data today at 13.30 GMT. Markets broadly expect CPI to increase 1.7 per cent year on year in December, up from 1.4 per cent rise seen in November. Month on month, the index has likely contracted in December, falling 0.4 per cent after having dropped 0.1 per cent in November. The Bank of Canada aims to achieve an inflation range of 1 to 3 per cent.

    Bank of Canada's core CPI growth will likely expand 2 per cent year on year in December, remaining unchanged from November’s growth rate. Month on month, the central bank's core CPI is expected to drop 0.3 per cent.

    Gas prices have likely fallen 5.0 per cent in December compared to November. Sharp fall in gas price is believed to have weighed on prices, hindering inflation growth. The core CPI index is also expected to decline 0.2 per cent month on month in December. It had dropped 0.3% drop in November.

    The weakening of the loonie has raised prices of import goods. This could be a reason why higher inflation rate is seen when compared year on year. With oil at multi-year low resource rich Canada is hard hit and the central bank has been forced to keep the dollar weak to stomach the losses incurred on account of oil slump. The Canadian dollar has fallen 17 per cent in the past 12 months. BoC governor Poloz justified a weak currency saying "It is not a coincidence that the Canadian dollar is about where it was back in 2003 and 2004," "oil prices are also about where they were back then." He noted that falling commodity prices were draining $50-billion (Canadian) and reiterated that the weak Canadian dollar was the result of the extremely low commodity prices.

    The lower Canadian dollar has helped to keep Canadian goods and services competitive and the foreign demand stable. However, it has raised the prices of fresh fruits and vegetables, 80 per cent of which is imported. A weaker currency will imply people have to shell out more to purchase the food items. Governor Poloz admitted “The depreciating currency means higher prices for imported goods and services”.

    The Bank of Canada on Wednesday decided to hold its rates steady at 0.5 per cent instead of slashing it its post-recession low of 0.25 per cent apprehensive of the impact of the rate cut on the confidence of consumers who are already reeling under the impact of falling oil price. Economists had argued that rate cut would further depress the Canadian dollar and in the process undermine consumer confidence thereby negatively impacting business decisions. Economists thus feel that the decision to hold rate steady is a right call.
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