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Loonie Edges Higher On Rising Inflation

Don Curren December 18, 2019

Consumer prices in Canada rose more rapidly than expected on a yearly basis in November as energy prices advanced and underlying inflation gained a bit of strength, yet another factor suggesting the Bank of Canada is unlikely to cut interest rates in the near term.

The Canadian dollar edged modestly higher after the release, reaching its highest level since Oct. 29 as traders digested the data, the last significant domestic data before the end of the year.

Statistics Canada said the Consumer Price Index (CPI) rose 2.2% on a year-over-year basis in November, up from the 1.9% increase in each of the previous three months. Economists had expected headline inflation to come in at 1.9% again in November.

Excluding gasoline, the CPI rose 2.3% in November, matching the increase from October. It was the first time energy prices rose year over year since April.

StatsCan said that on a seasonally adjusted monthly basis, the CPI rose 0.1% in November, following a 0.3% increase in October. The consensus forecast was for a 0.1% decline.

Energy prices rose 1.5% year over year in November after declining by 2.9% in October, the federal statistics agency said. Gasoline prices drove the CPI increase in November, growing 0.9% on a year-over-year basis following a 6.7% decline in October.

StatsCan said that increase, the first since October 2018, was attributable to sharply lower prices in November 2018, when global oil prices fell amid a supply glut caused by reactions to international political uncertainties

The average of the Bank of Canada’s three preferred measures of core inflation rose to 2.17% in November, up from 2.1% in October as the median metric rose to 2.4% from 2.3% in October, and the trim version increased to 2.2% from 2.1% while the common measure held steady at 1.9%. Economists had forecast the average of the three core inflation measures would be 2.07%.

Several rhetorical interventions by Governor Stephen Poloz and other Bank of Canada policymakers since the Bank’s Dec. 4 policy statement haven’t affected expectations that the Bank will hold rates steady for the foreseeable future, and today’s data is entirely consistent with that.

Canadian retail sales for October will be released on Friday, followed by real GDP data for the same month on Monday. That’s essentially the last significant Canadian data release of the year, and Statistics Canada will be closed for statutory holidays on Dec. 25, Dec. 26 and Jan. 1.

The Canadian dollar has been performing strongly heading into the closing weeks of 2019, boosted by the broadly favorable tone for risk-sensitive assets after the US and China announced a “Phase One” trade pact, and today’s data add slightly to the positives supporting the currency.

Don Curren
Market Strategist and Content Editor

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