Canadian Inflation up by 0.1%

There was a significant rise increase in inflation after it recorded a slump of 0.20% in the month of August, the slump was mostly caused by low energy prices and the persisting excess capacity. Statistics Canada reported that there was a 0.1% month on month increase in the CPI index for the month of September, and a year over year increase of 1.3%. The Core Inflation which does not include eight of the most volatile components of the consumer basket recorded a rise of 0.2% month on month with a year on year growth of 1.8%, this was mostly in line with forecasts.

The Bank of Canada employed an inflation targeting regime in 1991 and aims to reach the inflation mid-point goal of 2.0%. Canadian policy makers have however been unable to meet that objective since the start of 2016 surrounded by the ongoing economic weakness and the falling energy prices, this indicates that monetary policy will likely remain accommodative for some time.

Goods prices slumped by 0.1% on the month to result in a 0.9% annual increase, as Canada recorded a 0.2% rise in prices in the services sector to reach an annual increase of 1.8%. Food prices recorded a slump of 1.3% on the month with its annual increase now at 0.1%, which is the least annual increase since early 2000.There was also a 0.8% increase in gasoline prices on the month, despite the growth, the commodity still recorded a 3.2% annual decline. Excluding food and energy, there was a 0.4% increase in prices to give a year-on-year rate of 2.0%. Clothing prices rose 3.4% on the month with a 0.1% year-on-year increase, while there was a 0.2% monthly decline in health and personal care prices, which held the annual increase to 1.4%.

The Bank of Canada in its monetary policy statement this week reduced their 2016 inflation forecast to 1.7% from 1.8% with the 2017 forecast reduced to 1.9% from 2.1% previously with the core rate expected to be 1.7% from 2.0% earlier. The BoC now estimates that the economy will expand by just 1.1% this year, as compared with its earlier forecast of 1.3%. For the next year, it projects the economy to grow 2 percent, downwardly revised from its previous estimate of 2.2%. The central bank kept the 2018 economic growth outlook unchanged at 2.1%.

Canadian bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Bank of Canada's target. Crude oil prices fell further on a stronger U.S. dollar and profit taking by the investors after relishing long rally. The International benchmark Brent futures fell 0.16 percent to $51.30 by 12:50 GMT. Lastly, Canadian stocks may struggle to continue its winning track Friday morning amid sluggish commodities. The S&P/TSX Composite Index rose 0.05 percent at the close of the trading session to 14,848.27 on Thursday.