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Will We Get A Surprise Reading from Canada Inflation Today?

USD/CAD will likely tumble if inflation doesn't fall in January

Inflation has been stubborn in Canada since October, remaining sticky, but today expectations are for a decline. However, the decline is not expected to be too pronounced and we might even get to see a jump in Canada inflation which would send the CAD higher and USD/CAD tumbling lower.

The headline Consumer Price Index (CPI) for Canada is expected to show a year-on-year slowdown to 3.2% for January, compared to December’s release which showed inflation at 3.4%. If this forecast holds, it would mark the first deceleration since October, which would be welcomed by the Bank of Canada (BOC). However, core measures of inflation, such as core trim, are expected to decline slightly to 3.6% year-on-year, while core median is anticipated to remain unchanged at 3.6% year-on-year.

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However, some analysts expect inflation to remain sticky once again, with anticipations for the monthly number varying from 0.3% to 0.7%. Citi is one of the large names that expects inflation to come above expectations for January.

Citi

We anticipate a 0.5% month-on-month (MoM) increase in the headline Consumer Price Index (CPI) for January, with the year-on-year (YoY) reading remaining at 3.4%. Shelter prices are expected to remain robust, although recent remarks from Bank of Canada (BoC) officials have been interpreted as overlooking the strength in shelter inflation. While officials may be hesitant to raise rates solely due to shelter inflation, the trajectory of shelter inflation is likely to be a crucial factor in policy decisions.

The path of core inflation measures will continue to be the primary focus of monthly inflation reports. The 3-month average annualized pace of CPI-median and CPI-trim is expected to remain elevated in January as a weaker reading from October drops out of the 3-month calculation. Leading indicators of core inflation, such as the CFIB price plans survey, suggest that 3-month core inflation could decrease closer to 2.5% by mid-year. However, BoC officials are likely to require several months of 3-month core inflation around 2.5% before considering rate cuts.

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Skerdian Meta
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Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.
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