December annual inflation seen easing to 2.8 percent

Fri Jan 13, 2012 4:02pm EST
 
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WHAT: Canada's consumer price index for December

WHEN: Friday, Jan 20 at 7 a.m.

FACTORS TO WATCH: Annual inflation is expected to ease slightly from November. But the year-on-year rate would still be well above the Bank of Canada's 2 percent target and may top the bank's 2.7 percent estimate for fourth quarter CPI year-on-year. However, that projection was made in October and the bank may tweak it in its Monetary Policy Report, due two days prior to the release of the CPI data.

Declining gasoline prices are the main factor bringing down the monthly CPI in December.

Core CPI, which strips out volatile items and is a more realistic indicator of underlying price trends, will likely decline on the month due to retailer discounts during the Christmas shopping season and as car dealers offer better deals on 2012 models after supply-chain disruptions drove up car prices in prior months.

The data is unlikely to have much impact on the Bank of Canada's rate outlook, partly because the bank next sets rates on Tuesday January 17 and its next announcement is only on March 8.

Central bank officials have sounded relaxed about price pressures in their public remarks and projections show the annual inflation rate declining significantly this year compared to 2011. Policy decisions will be more linked to U.S. economic growth and the unfolding European debt crisis.

MARKET IMPACT:

A higher-than-expected CPI reading could drive up the Canadian dollar and lower bond prices as investors see central bank rate cuts as less likely.   Continued...