Inflation Remains Stubbornly Sticky in Canada

Sellers have been in control in USD/CAD since early November, after failing to hold gains above the resistance zone around 1.39, Buyers were trying this resistance zone, but USD weakness returned as the FED turned dovish and this pair reversed abruptly, dropping more than 550 pips.

The bearish momentum in crude Oil prices should have dragged the CAD down with it, but that didn’t happen since the CAD benefited from better risk sentiment. Although, crude Oil has been increasing in the last several days, which has helped the CAD further, but the bullish momentum in Oil seems weak.

Besides that, last week the FED commented on rate cuts, confirming the market’s fears about a steep monetary easing process that might start in March/April next year. That sent the USD crashing lower, with USD/CAD tumbling around 250 pips lower. Yesterday this pair was consolidating around 1.34 but today’s CPI inflation report from Canada gave this pair another kick lower, sending it below 1.3350. The report was quite strong,

Canada CPI Inflation for November 2023

Grocery prices continue to rise

• Overall Grocery Price Increase Slows: In November, the rate of increase in grocery prices slowed to 4.7%, compared to 5.4% in October.
• Five-Month Trend: This represents the fifth consecutive month of year-over-year slowdown in grocery price growth.
• Significant Contributors to Slowdown:
  • Non-Alcoholic Beverages: Prices decreased by 0.6%.
  • Fresh Vegetables: Prices increased, but at a lower rate of 2.5%.
  • Other Food Preparations: Prices increased by 6.4%.
• Influencing Factors: A combination of international and domestic factors.
• Categories with Faster Price Increases:
  • Meat: Prices rose by 5.0%.
  • Preserved Vegetables and Vegetable Preparations: Prices increased by 5.8%.
  • Sugar and Confectionery: Prices saw a significant rise of 8.3%.

Service prices remain elevated:

• Services Prices Remain Elevated: In November, service prices rose by 4.6% year over year, consistent with the increase in October.
• Significant Increase in Travel Tours Prices:
  • November Spike: Prices for travel tours increased dramatically by 26.1% year over year.
  • Compared to October: This represents a significant jump from the 11.3% increase in October.
  • Main Reason: Largely due to events in destination cities in the United States during November.
• Decline in Cellular Services Prices:
  • Significant Price Drop: Prices for cellular services dropped by 22.6% compared to November 2022.
  • Influence of Promotions: Reductions were influenced by industry-wide promotions ahead of Black Friday, offering cheaper cell phone plans and bonus data.

Energy prices fall to greater extend year on year:

• Overall Decline in Energy Prices: Energy prices decreased more in November (-5.7%) than in October (-5.4%).
• Significant Drop in Fuel Oil Prices:
  • Dramatic Fall in November: Prices for fuel oil and other fuels decreased by 23.6%.
  • Comparison with October: This follows a 12.6% decline in October.
  • Influencing Factor: The reduction was partly due to the temporary suspension of the federal carbon levy on fuel oil.
• Increase in Electricity Prices:
  • November Rise: Electricity prices increased by 8.2% year over year.
  • Compared to October: This was a higher increase than the 6.7% in October.
  • Primary Cause: The rise was mainly due to higher prices in Ontario (+7.0%), linked to increased time-of-use rates.

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