THE TAKEAWAY: [Canada’s inflation rate slows in July] > [Dampens speculation for rate hike] > [CAD weakens]
Canadian consumer prices fell in July for a third month, as declines in clothing and energy prices moderated gains in food and telephone services. According to a report released today by Ottawa-based Statistics Canada, Canada’s consumer price index (CPI) contracted 0.1 percent in July from a month ago, after declining 0.4 percent in June. On a yearly basis, Canada’s inflation rate rose 1.3 percent in July, following a 1.5 percent gain previously. The latest figures fall short of consensus forecasts, as economists surveyed by Bloomberg News had expected an increase of 0.2 percent from the previous month, and 1.5 percent from a year ago.
The Bank of Canada’s core inflation rate, which strips out the volatility of food and energy prices, slowed to an annual rate of 1.7 percent after gaining 2.0 percent in June. Bank of Canada’s Governor Mark Carney said last month that inflation will remain below the Bank’s 2 percent target over the coming year, partially due to lower energy prices. At the same time, Carney had reiterated that the Bank may raise its key interest rate as the economy moves towards full output.
USDCAD 1-minute Chart: August 17, 2012
Chart created using Market Scope – Prepared by Tzu-Wen Chen
Today’s slower-than-expected inflation rate data adds to signs that the Canadian economy is moving away from full capacity, and dampens speculation for a rate hike. The Canadian dollar had fallen against its U.S. counterpart ahead of the consumer price report, but trimmed back some of its losses following data release. At the time this report was written, the USDCAD was trading at C$0.9883.
--- Written by Tzu-Wen Chen, DailyFX Research