Friday, July 23, 2010

Canada's Inflation Rate Drops To 1%, Lowest in 8 Months

The Canadian annual inflation rate fell to just 1% in June, the lowest level in eight months. Core inflation also dropped, to 1.7%.

Interest Rates

With this data, the bank of canada, which yesterday increased its interest rates by 25 basis points to 0.75%, will have very little ammunition to keep raising rates.

CP: "The main point is that the bank cannot wait until inflation erupts, but this very much argues for a very cautions, low approach to unwinding the stimulus," said Sal Guatieri, an economist at BMO Capital Markets.

Some analysts "continue to be critical of the Bank of Canada for applying the monetary brakes — or easing the accelerator, as the central bank would see it — before the economy is ready to stand on its own feet".


"Canada's gross domestic product followed up the strong 4.9 per cent advance in the last three months of 2009 with an even bigger jump forward of 6.1 per cent in the first quarter of this year.
The economy has not been as bouncy recently. Output growth stalled in April, and the Bank of Canada estimated this week that growth slowed to only three per cent in the second quarter, and will slow even more in the third quarter.

The central bank also predicted Canada's economy won't return to full capacity until the end of 2011".

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