Strong CPI unlikely to boost loonie

The biggest problem the Canadian economy is facing is not deflation but growth. Lower oil price and severe wildfire that led to the drop in the oil production have been a major drag on the Canadian economy. In addition to that, the ailing manufacturing sector has also pushed back business investments. Under such circumstance, it is widely anticipated that the bank of Canada (BoC) would maintain the current easing and pursue dovish monetary policy goals.

So CPI would be evaluated in terms of whether they can provide room for further easing or not.

Let’s review the CPI, for which data will be released today around 12:30 GMT.

Past trends –

• After reaching 0.8 percent y/y in April 2015, inflation has been rising and reached 2 percent in January this year. It has been very volatile lately. Nevertheless, they are in the target range of Bank of Canada (BoC). Core CPI has averaged above 2 percent since mid-2014. Consumer prices are proving to be quite sticky in Canada.
• Consumer price index came at 1.1 percent y/y in August and the core came at 1.8 percent y/y.

Today CPI is expected at 1.5 percent. But this higher figure or even higher than expected figure unlikely to be much of a boost for the loonie as it is unlikely to influence the easing stance of BoC. In addition to that, the CPI figure has been very volatile lately.

We have forecasted the Canadian dollar to reach 1.4 per dollar, which is currently trading at 1.323 per dollar.