Negative Canadian Consumer Price Inflation

July 17, 2009

The Canadian CPI declined 0.3% in the year to June, its first on-year drop since November 1994.  After peaking at 3.5% last August, inflation fell to 1.1% by December and +0.1% in May.  Higher energy costs, mostly for gasoline, accounted for a June-over-May seasonally adjusted 0.3% increase  of consumer prices after a rise of 0.2% in May.  The unadjusted CPI went up 0.3% last month.  These results were a tenth higher than forecast.  But the core rate of inflation finally dropped below its 2% target to 1.9% on-year.  Food prices firmed 0.1% seasonally adjusted and 5.5% from June 2008 unadjusted.  Energy prices increased 3.5% from May unadjusted but fell 19.0% from June 2008.  Bank of Canada officials are projecting a trough of minus 0.8% in total CPI inflation in the current calendar quarter and no return to 2.0% until the second half of 2H11.  Core inflation is expected to bottom at 0.9% next quarter and not climb back to the 2% target until 2H11 as well.  Monetary policymakers are scheduled to release a new interest rate policy statement next Tuesday at 09:00 EDT (13:00 GMT) and will follow that on Thursday with a quarterly Update of the April Monetary Policy Report.  Canada’s target rate is already at the perceived low of 0.25%, so no rate change is expected there.  So far, officials have rejected quantitative easing but have thought through details of such a program should one eventually become necessary.

Copyright Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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