Talking Points:
- November Canadian CPI at -0.4% m/m and +1.2% y/y far worse than expected
- Oct Canadian Retail Sales at +1.1% m/m versus +0.3% expected.
- Check out the DailyFX economic data calendar for market moving releases in the upcoming days.
Canadian overall consumer prices declined in November at the fastest pace in 11 months Statistics Canada reported earlier today; a sign that significant economic slack lingers as the output gap remains undiminished.
The agency said that its Nov Consumer Price Index fell 0.4% month over month while the annual rate edged lower to 1.2% from 1.5% in October in response to a 0.7% drop in food prices and a 1.7% decline in energy costs. A poll conducted by Bloomberg News showed that analysts had expected headline inflation to come in at -0.2% m/m and +1.4% y/y.
In the report today, Statistics Canada also unveiled three new indicators for Core CPI that better capture shifts in consumer prices and that reduce month-to-month volatility. CPI-common increased 1.3% y/y, CPI-Median stood at +1.9% y/y and CPI-Trim came in at 1.6% y/y. It is worth noting that all three new measures remained below the 2.0% goal set by policy makers; an indication that the disinflation trend is widespread in the economy.
Concurrently, Statistics Canada also published retail sales data for the month of October. The report; which was more upbeat, revealed retailers posted a +1.1% percent increase in receipts following a +0.8% rise the preceding month, pointing to an acceleration in consumer spending aided by fiscal policies. Meanwhile, retail sales excluding autos advanced +1.4% m/m. Both prints for retail sales beat market consensus.
Even though inflationary pressures were muted in November, the unsatisfactory data is not likely to alter the course of monetary policy in Canada as interest rates already hover at historical lows. Softening inflation, however, will ensure policy remains accommodative for longer than expected and will ease market’s perception that BoC will try to follow the Fed’s tightening cycle in upcoming year one way or another to prevent capital flight.
Here’s a summary of the Canadian data:
- CAD Consumer Price Index (NOV): -0.4% m/m, +1.2% y/y versus -0.2% m/m, +1.4% y/y expected.
- CAD Retail Sales (OCT): +1.1% m/m versus +0.3% expected from an upwardly revised +0.8%
- CAD Retail Sales Ex. Auto (OCT): +1.4% m/m versus +0.7% expected from an upwardly revised +0.3%
Chart 1: USD/CAD 1-minute Chart Intraday (December 22, 2016)
Immediately after the data, USD/CAD extended weekly gains rising as high to C$1.3520 as weaker than expected Canadian inflation data and a solid Final US Q3 GDP report increased appetite for the U.S. Dollar. At the time this report was written, CAD was down 0.63% against the greenback in intraday trading.
Read more: Canadian Dollar Loses Crude Oil Price Focus, Trump Trade Takes All
--- Written by Diego Colman, DailyFX Research
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