TORONTO (Reuters) - Canada's annual inflation rate moderated in October from a near three-year high in September, taking some pressure off the Bank of Canada as it keeps interest rates low due to global economic uncertainty.
"It was a little stronger than expected but now looking at the details of it, most of it was driven by clothing and shelter components, and even though four of the eight components were up, I don't think there's a lot in this release that will have the Bank of Canada worried."
"If you look at clothing, even though it's up, that should come down in the coming months, especially as holiday discounting comes into play. And core inflation is quite sticky hanging around the 2 percent target and that could be expected to wind off a little bit especially into the balance of next year."
"There was really nothing wonky in this release, everything was pretty tame. Shelter was the main contributor and shelter includes energy, electricity and water, apart from that when you're looking at the breakdown now, if I'm the Bank of Canada I'm not too concerned that there's going to be a persistent price shock going forward."
MARK CHANDLER, HEAD OF CANADIAN FIXED INCOME AND CURRENCY STRATEGY, RBC CAPITAL MARKETS
"A little firmer (than forecast), but it's unlikely to be a big determination in what the Bank of Canada is thinking. We've had two decent sized increases in core inflation ... we failed to see the moderation that we expected but the dominant consideration for the Bank of Canada of course is still what's happening on the growth side. We've seen some pleasant surprises for Q3 and it looks like the Bank has been too pessimistic in their outlook for Q4 but it's still early days."
"The market is still wanting to price in rate cuts, but it's very hard for them to shake that notion off given what's happening in developments in Europe. What it does suggest is that if we do get a solution and financial conditions start to improve then Canada has the chance of sliding on by."
CAMILLA SUTTON, CHIEF CURRENCY STRATEGIST AT SCOTIA CAPITAL
"All in all higher than expected inflation rate in Canada. With the exception of a few components most of the components were higher month-over-month so the gains were fairly broadbased."
"That limits the ability for the Bank of Canada to turn too dovish with still rising inflation in Canada, and it's positive for the Canadian dollar."
- Overnight index swaps, which trade based on expectations for the central bank's key policy rate, showed that traders scaled back bets on a rate cut for this year or next.
- The Canadian dollar firmed to a session high against the U.S. currency of C$1.0229 against the greenback, or 97.76 U.S. cents. The currency ended Thursday at C$1.0283 versus the greenback, or 97.25 U.S. cents.
- The yield on the two-year Canadian government bond, which is especially sensitive to Bank of Canada interest rate moves, rose to 0.93 percent from 0.913 percent just before the release.
Reporting by Claire Sibonney and Jennifer Kwan; Editing by Jeffrey Hodgson