Canoe

Inflation rate holds steady

By Randall Palmer, REUTERS  

OTTAWA - Canadian annual inflation held steady at 2.9% and core inflation was at 2.1% in November, with the core number slightly undershooting forecasts, according to Statistics Canada data released on Tuesday.
The data caused a brief dip in the Canadian dollar but it quickly recovered as analysts reckoned that the Bank of Canada was likely to stay on the sidelines for some time to come.
Both the overall consumer price index and the core index, which strips out volatile items, rose a modest 0.1% on the month.
The overall numbers matched the median predictions in a Reuters survey. Analysts had, however, expected core inflation of 2.2% on the year and 0.2% on the month, in each case 0.1 point more than the actual result.
“We saw the dollar weaken slightly in the aftermath of the report, since core was a little bit light,” BMO Capital Markets deputy chief economist Doug Porter commented.
“But the fact is core is still above the bank’s (2%) target, and it looks as if core inflation is running above what they forecast for the fourth-quarter, so I’d hardly say this is an excuse for the bank to ease.”
In October the central bank predicted 2.7% total inflation and 2% core inflation for the fourth quarter. On Dec. 6 it extended a freeze on its overnight rate at 1% for a 15th straight month as it voiced concern over Europe.
Falling gasoline prices in November tempered Canada’s inflation data, though they were still 13.5% higher than a year earlier. Food prices continued to put upward pressure on the index, up 4.8% on the year and 0.9% on the month. On a seasonally adjusted basis, however, food was only up 0.2% from October.
Overnight index swaps, which trade based on expectations for the central bank’s key policy rate, showed that traders very slightly scaled back bets on a rate cut in 2012.
Canada’s currency CAD/ weakened slightly to $1.0335 to the U.S. dollar, or 96.76 cents US, from around $1.0328 just before the data, but within about half an hour it had recovered the lost ground.
“People might think the Bank of Canada is going to cut at some point in 2012. I don’t think that’s the case. The Bank of Canada is going to be on hold for the forseeable future,” said David Bradley, director of foreign exchange trading at Scotia Capital.
“I think that over time the Canadian dollar should continue to slowly appreciate, if not against the U.S. then against some of the crosses, against the euro, etc.”
U.S. inflation, by comparison, was 3.4% in November.
(Additional reporting by Jennifer Kwan, Euan Rocha and Julie Gordon; editing by Andrea Ricci)