Inflation Rate of Canada Reaches the Highest Level of 2.1%

Canadian DollarDue to direct correlation with the crude oil price, the Canadian Dollar is generally categorized as a commodity currency. Crude oil is regarded as the biggest export revenue earner of Canada. Hence, it is likely that crude oil price volatility will have a direct impact on the Canadian Dollar.

But it is interesting to note that the relationship has broken in the past few months. The market analysts have pointed out two important reasons for the change in the behaviour of Canadian currency.

First of all, the market is of the opinion that recent hike in crude oil price is not due to rise in demand but due to OPEC cartel manipulation. Secondly, benchmark interest rate has become the most important factor for Loonie instead of crude oil price.

Hence the market is reacting positively or negatively that might affect the Bank of Canada’s interest rate decisions. In this context, two crucial economic data – retail sales and core inflation that reflect the overall economy of Canada were released yesterday.

As per Statistics Canada, there is 0.3% monthly growth in consumer prices in November 2017 as compared to 0.1% in the earlier month and greater than 0.2% as expected by the analysts. It is to be noted that the inflation rate has reached to the highest level of 2.1 percent in the year 2017. In October, the annual inflation rate of Canada accelerated to 1.4 percent.

The inflation rate has exceeded the expectation of Bank of Canada target of 2 percent. The inflation rate hit the two-year low figure of 1% in June 2017. It is to be noted that data of inflation rate affects the interest rate decision of all the central banks across the world including Bank of Canada.

CBC News

Statistics Canada in its report has mentioned that retail sales have increased to $49.9 billion in October 2017 with a monthly increase of 1.5 percent. It was more than 0.3% growth in September and 0.2% expectation of the analysts. The rise in the retail sales was strongly boosted by the increase in sales of the new car.

If we exclude the automobile and spare parts sales, there is 0.8% rise in retail sales for the month of October as compared to 0.3% growth in its last month.

The economists are hopeful that the retail sales of Canada would increase by a maximum of 0.4 percent. Strong sales growth and inflation rate can lead to another hike in interest rate in January 2018. The economists are only concerned about the negative impact of NAFTA negotiations on Canada investments.

Steven Rudford

Steven Rudford

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