Talking Points:

- The Canadian Consumer Price Index (CPI) missed estimates at 1.6% versus 1.8% expected; lowest level of the year

- Headline CPI spike led by lower gasoline prices; cores down slightly

- Bank of Canada is caught between the Fed and Housing Market; Canadian dollar tumbles

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The Canadian economy saw its slowest pickup in prices this year, according to the latest consumption data released by Statistics Canada today. The Consumer Price Index came in at 1.6% y/y, missing the expected 1.8% y/y. Core CPI declined along with the headline figure.

The consumer price index (CPI) released by Statistics Canada serves as an indicator for consumer price trends in the Canadian economy. The index measures major components of consumer spending including food, shelter, household operations, transportation, gasoline, among other items. Core consumer price index also measures components of consumer spending but eliminates food and price data because those prices tend to be more volatile from a month-to-month basis. Based on the results of CPI a monetary authority may be inclined to adjust interest rates more frequently. Generally, higher prices indicates a rise in inflation and economic activity.

The top contributors in decline were gasoline and energy at -1.1% and -0.9%. In the month prior, these figures were also down at -4.9% and -3.0% respectively. When considering the median core CPI figure it is further proves that prices are declining. This puts the Bank of Canada (BOC) in a particularly delicate place in terms of monetary policy. Surely, these figures don’t support a rate hike. But with the Fed expected to pick up their pace to normalize the BOC runs the risk of falling behind. The BOC also faces the challenge of managing a bubbling housing market. While measures are being taken to cool the heated market it may not enough to curtail demand.

Below is a list of data that has driven the Canadian Dollar lower against the US Dollar:

- CAD Consumer Price Index (MoM) (MAR): 0.2% actual versus 0.4% previous

-CAD Consumer Price Index (YoY) (MAR): 1.6% actual versus 2.0% previous

- CAD Consumer Price Index (MAR): 129.9 actual versus 129.7 previous

- CAD CPI Core- Common (YoY)% (MAR): 1.3% actual versus 1.3% previous

- CAD CPI Core- Trim (YoY)% (MAR): 1.4% actual versus 1.5% previous

- CAD CPI Core- Median (YoY)% (MAR): 1.7% actual versus 1.8% previous

Chart 1: USD/CAD 15-minute Chart (April 21, 2017 Intraday)

Canadian Dollar Falls Sharply After Disappointing Consumer Price Data in March

Immediately following the data, the Canadian Dollar fell sharply against the US Dollar.The USD continued to rally heading towards the 1.350 price level. At the time this report was written, the pair traded at 1.349.

--- Written by Dylan Jusino, DailyFX Research