Bank of Canada – Canada’s Inflation Edges Up, but Still Below Target

Bank of Canada – Canada’s Inflation Edges Up, but Still Below Target

Canada’s consumer price index (CPI) edged up to 0.9% in November from 0.7% during the previous month, the latest inflation report from Statistics Canada shows. Despite the increase, the inflation gain was still below market projections for a 1.0% rise and below the central bank’s target band for a second consecutive month, suggesting that weak consumer demand will remain one of policy makers’ top concerns in the months to come.

November was the seventh month in the past 13 where the headline inflation witnessed growth of less than 1% in annual terms. It was also the 19th month to see inflation below the central bank’s 2% target. The rise was mainly driven by an increase in shelter and food costs, but this was offset by lower prices for health and personal care, as well as for clothing and footwear.

Headline inflation recorded no change month-on-month, while the core rate, which excludes volatile items such as gasoline and food, declined to 1.1% from 1.2% in October, thus failing to meet market expectations for a 1.3% gain.

Bank of Canada

Bank of Canada published quarterly guidance in October. The bank is due to revise its forecast on 22 January.

The Bank of Canada published its quarterly guidance in October, predicting that inflation in the fourth quarter would be 1.3%, but now this scenario seems rather unlikely. The bank is due to revise its forecast on 22 January.

Statistics Canada’s inflation report, which was released on Friday, prompted a decline in the Canadian dollar to a low of C$1.0713 to the US dollar, or 93.34 US cents, against C$1.0666, or 93.76 US cents, the previous day. The weakening justified analysts’ fears that the heavy discounting around Black Friday would prevent inflation from picking up steam in the short term.

Bank of Canada Keeps Key Interest Rate On Hold

Bank of Canada said that the economy is growing in line with its Monetary Policy reports.

In a statement announcing its decision last week, the Bank of Canada said it was seeing reassuring signs in the local economy and globally. It also noted, however, that inflation was still too low to change its stance that the pace of recovery remains fragile and that the economy needs the monetary policy stimulus currently in place.

Bank of Canada

Bank of Canada said that the economy is growing in line with its Monetary Policy reports.

The central bank considers that Canada’s economic growth is moving in line with the guidance reflected in its Monetary Policy reports issued in October and July this year. However, it pointed out that while the third-quarter improvement of 2.7% in the country’s gross domestic product (GDP) was higher than forecast, its composition did not show signs of rebalancing towards exports and investment.

Growth in the housing sector was also more substantial than predicted earlier, but the rate reflected revised demographic data and more people buying homes as a result of improved financing conditions. This prompted the bank to reiterate its projection for a “soft landing” in the market.

At the same time, the inflation rate has dipped further below the Bank of Canada’s 2% target, driven by excess supply and by fierce competition in the retail sector, coupled with the drop in gasoline costs.

The Bank of Canada is due to release its next rate announcement on 22 January 2014.

Despite the Bank of Canada continuing to holding rates steady, the DEX Universal Bond Index is down by a full percentage point, year-to-date. This suggests that the market is expecting higher rates sooner rather than later. Fixed-income investors should avoid long-term bonds and focus on defensive high quality short-term issues.

The Canadian Govt Bonds 10 Year Note is 2.67%, up from 1.79% at the beginning of 2013–an increase for 49%.

Investment – Canada’s Economy Improves At Fastest Rate In Two Years

Investment – Canada’s Economy Improves At Fastest Rate In Two Years

Statistics Canada’s latest quarterly report on health of the country’s economy showed its strongest pace of growth in two years in the July-September period, expanding by 2.7% year-on-year. The increase was far above the 1.6% rate recorded in the previous quarter and was very close to the US economic improvement rate of 2.8% in the period under review.

Statistics Canada economy strongest pace of growth

Statistics Canada – economy showed its strongest pace of growth in two years in the July-September period, expanding by 2.7% year-on-year.

Most of the country’s leading industry sectors contributed to the increase in Canada’s economic output, with the goods-producing sector seeing a 0.9% uptick and the services sector witnessing a 0.6% improvement. The statistics agency also recorded a notable rise in manufacturing, retail and wholesale trade, as well as in finance and insurance. Mining and oil and gas extraction exhibited some signs of improvement, recovering from a 2.3% drop in April-June and finishing the quarter with a 2.2% increase.  The recovery in materials and energy is likely to continue to exhibit volatility as the other global economies are also exhibiting tepid growth prospects.

Consumers were still the main driver behind the economic growth, although spending levels were lower than three months earlier. Given the growing concern over the ballooning levels of consumer debt, the sustainability of spending behaviour is questionable. Business spending also recovered and inventory build-up contributed to the improvement, too.

The market remained broadly lukewarm to the data, likely due to the fact that the quarterly figures were impacted by a number of one-time and unsustainable factors. The improvement was partially a result of the natural return of activity from the Alberta flooding and the construction strike in Quebec in June.  When market players understood more about the factors behind the increase it became clear that the improvement was not as solid as the figures might suggest.

Given the continuing doubts as to the durability of this rate of growth, the Bank of Canada continues to postpone rate increases at this juncture. Analysts expect the central bank to retain its policy rate at 1% in its upcoming announcement and keep it unchanged well into 2015.

GDP in August Exceeds Forecast on Record Oil and Gas Extraction

GDP Rose 0.3 Percent to an annualized $1.59 trillion

August gross domestic product grew faster than economists forecast as a result of record extraction of oil and natural gas. This puts the Canadian economy on track for its fastest quarterly expansion in two years.

Output rose 0.3 percent to an annualized $1.59 trillion Statistics Canada said today in Ottawa, beating the 0.1 median forecast in a Bloomberg economist survey.

Growth will likely quicken to about a 2.5 percent annualized pace in the fourth quarter according to economists at CIBC World Markets and TD Securities, the fastest since a 6.2 percent gain two years ago. Stronger growth would reduce what the Bank of Canada last week called “significant” slack in the economy, which led policy makers to drop language about raising interest rates.

Statistics Canada reported that oil and gas extraction rose 2.8 percent in August to a record C$97.6 billion. Other industries made a more modest contribution to growth during the month, with wholesaling rising 0.4 percent and manufacturing falling 0.3 percent.

GDP Bank of Canada

GDP Rose 0.3 Percent to an annualized $1.59 trillion

Last week, the Bank of Canada predicted third-quarter growth of 1.8 percent, after it slowed to 1.7 percent in the second quarter as a result of soft energy exports and business investment. The Bank of Canada kept its key overnight interest rate at 1 percent. Governor Stephen Poloz said slack in the economy would persist until around the end of 2015.

In 2012, GDP grew by 2.0 percent in August, Statistics Canada said, accelerating from July’s revised 1.5 percent.

Other economic indicators suggest a slow expansion, including inflation that’s close to the bottom of the central bank’s 1 percent to 3 percent target range and a reduced pace of job growth this year.

Statistics Canada also reported that average weekly earnings of non-farm payroll employees rose 1.3 percent in August from a year earlier while the average number of hours worked fell to 32.9 from 33.1 over that period. The number of workers on payrolls rose 0.3 percent in August from July, or by 51,300.

The markets have advanced to the point where positive developments appear to be priced in while the longer-term headwinds have been ignored.  This could set the stage for some pullbacks in the market as these underlying issues surface.