Canadian Inflation Hits 1.2 Percent in December

Canada’s annual inflation rate hit a five-month high in December, but still fell short of market expectations, on higher gasoline prices and property taxes, Statistics Canada said Friday.

The all-items consumer price index in December rose 1.2% year-over-year, which was above the previous month’s 0.9% gain but below market expectations for a 1.3% rise, according to economists at Royal Bank of Canada. The December report also marked the 20th consecutive month that annual inflation was below 2%, which is the level the Bank of Canada aims for when setting its benchmark policy rate.

The annual core rate, which excludes volatile components such as some food and energy prices, rose 1.3%, matching market expectations.

On a month-over-month basis, though, both headline and core prices fell, 0.2% and 0.4%, respectively. Economists expected the month-over-month decline, advising clients prior to the data release a year-over-year gain in December would reflect steep price drops recorded in the same year-ago month.

The Canadian dollar, which has weakened markedly this month, edged up in choppy trading following the release of the inflation report at 8:30 a.m. EST. The U.S. dollar was at C$1.1054 Friday morning, from C$1.1080 right before the data release.

This week, the Bank of Canada stepped up its concern over low inflation in its latest interest-rate decision, saying the downside risks to inflation have “grown in importance.” The central bank’s forecast, released Wednesday, suggested inflation is set to “remain around” 1% in the first half of 2014, and won’t reach the preferred 2% target for about two years, or early 2016. It attributed the tepid pace of price increases to larger-than-anticipated amounts of spare capacity in the economy, and heightened competition among retailers.


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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza