Canada: Inflation above expectations in December, still BoC can be patient - NBF

Today’s Canadian CPI data showed a decline in December of 0.1% in the index and an increase in the annual rate to 2.0%. Matthieu Arseneau, economist at the National Bank of Canada considers that with the recent data, the Bank of Canada can remain patient. 

Key Quotes:

“Inflation came in well above expectations in December. A weakness was expected as gasoline prices dropped significantly in December but that was more than offset by a 0.4% jump in ex-food and energy. The CPI increase, however, was far from being widespread among components.”

“We note that air transportation experienced a 4.6 standard deviation rise in December (+22.6%), the consequence of the new source of data used by Statistics Canada since April. By our calculation, air transportation explains no less than 0.3% of the monthly rise in ex. food & energy index.”

“The Bank of Canada’s preferred measures, which are less affected by strong moves in specific components, registered much tamer increases. Case in point, our in-house replication of CPI-Trim and CPI-median both rose only 0.12% on a month-to-month basis in December (seasonally adjusted).”

“The Bank of Canada can remain patient and assess the impact of the recent deterioration of financial conditions before raising rates again.”