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Canadian CPI on Deck

H.S. Borji
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Canadian CPI on Deck

Canadian fundamentals will take centre stage Friday when Statistics Canada reports on May consumer inflation. The reading could show Canadian inflation increased 2.1 percent in the 12 months through May.

Consumer prices increased 0.3 percent in April, which translated into an annualized gain of 2 percent that was the largest in two years.

The sharp rise in consumer prices boosted optimism Canada’s uneven recovery could be stabilizing in the second quarter. However, the Bank of Canada disregarded the increase at its June policy meetings, indicating core inflation remained well below the central bank’s target.

So-called core inflation, which strips away volatile elements such as food and energy, advanced 0.2 percent in April. Year-on-year, core prices increased 1.4 percent.

Friday’s reading could show core prices rose 0.2 percent in May and 1.5 percent annually.

Rising inflation diminishes the likelihood of a rate cut, which the BOC has promised it would consider should the economy continue to struggle. Although acknowledging the faster than forecast rise in inflation, the central bank said it was due to temporary factors such as rising energy costs.

The BOC’s optimism remained subdued at the June meetings due to poor economic growth in the first quarter.

“The Canadian economy grew at a modest rate in the first quarter, held back by severe weather and supply constraints,” read the June 4 BOC press release. “The ingredients for a pickup in exports remain in place, including the lower Canadian dollar and an anticipated strengthening of foreign demand.”

Canada’s gross domestic product advanced only 1.1 percent annually in the first three months of the year, well below forecasts calling for 1.8 percent.

Foreign demand for Canadian products and services appears to be increasing, according to a report today from Economic Development Canada. The EDC said business optimism among Canadian exporters was the highest since the 2003-2006 period, largely due to a weaker loonie and higher demand from the US.

The spring edition of the Trade Confidence Index, which measures business optimism among Canadian exporters and investors, increased 1.8 points to 77.2.

Canadian exports declined from $43.63 billion to $42.83 billion in April, Statistics Canada reported earlier this month. Imports rose from $42.86 billion to $43.46 billion.

In currency news, the Canadian dollar continued to strengthen Thursday. The USDCAD declined 0.2 percent to 1.0817, recovering from an intraday low of 1.0810.

In US data, weekly jobless claims declined 6,000 to 312,000, the Labor Department showed today.

The Conference Board’s leading indicator advanced 0.5 percent in May, narrowly missing estimates.

The US has no major releases scheduled Friday.

Statistics Canada will also report on retail sales Friday. Retail revenues are forecast to have increased 0.6 percent in April, following a decline of 0.1 percent the previous month.

Excluding automobiles, retail revenues increased 0.3 percent, estimates show.

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