Statistics Canada announced the Consumer Price Index (CPI) report on Wednesday. As per the report, the index remained unchanged in December that further supported the probability of the Bank of Canada deciding in favor of keeping the rates unchanged as well at 1.75% in its policy meeting scheduled for later today.
In terms of year over year, the consumer price index recorded a gain of 2.2% in December that aligned with November’s report. Economists, on the other hand, had expected a slightly broader gain to 2.3% in December. On the core inflation front, the figure was capped at 2.10% in December that was marginally lower than November’s 2.13%. In a previous estimate, analysts had expected core inflation to climb to 2.17% in December.
Core Inflation Is A Better Measure For Underlying Price Pressures
Core inflation is known to be a more applicable measure to get an insight into the underlying price pressure as compared to the headline inflation.
As per Wednesday’s report, the underlying price pressures in December remained close to the 2% inflation target of the Bank of Canada. The analysts construe the CPI report to contribute largely to directing the BoC’s decision regarding the monetary policy. While growth remained under pressure in the previous quarter, the consumer price index suggests sufficient flexibility for the BoC to keep the rates unchanged in its meeting on Wednesday.
The report further highlighted a 7.4% hike (year over year) in gasoline prices in December as compared to the figure for the same month last year. An oversupply of oil across the globe had weighed heavily on the gasoline prices towards the end of 2018, as per the analysts. The increase in CPI was reported at 2% excluding gasoline that marked the smallest gain (year over year) since November 2018.
Response In The Forex Market
The forex market didn’t respond too aggressively to the CPI report on Wednesday as traders and analysts kept their focus on the Bank of Canada’s rate statement to be announced later today. Following the economic data, however, the USD/CAD currency pair was seen dropping from a daily high of around 1.3090 to 1.3065. USD/CAD is yet to post a sustainable break above the crucial resistance at the 1.31 level. In an event that the Bank of Canada decides in favor of keeping rates unchanged, experts added, the pair can be expected to break the resistance and establish a longer-term bullish trend in the forex market.