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Canadian headline inflation accelerates in September

Canada’s headline inflation accelerated in September to 1.6 percent year-on-year from August’s 1.4 percent, coming in slightly below consensus expectations of 1.7 percent. On a sequential basis, the consumer price inflation accelerated to 0.2 percent.

The headline figure was mainly driven by gasoline prices. Gas prices have increased significantly in the past two months, thanks to disruptions related to hurricane Harvey and are up 14.1 percent year-on-year.

On a sequential basis, prices of food rose modestly by 0.07 percent; however, on a year-on-year basis, food prices accelerated to 1.4 percent. Core prices were slightly moved on the month. CPI-median rose to 1.5 percent year-on-year; however, both CPI-trim and CPI-common were unchanged at 1.8 percent and 1.5 percent respectively.

Excluding energy prices, inflation made little progress in the month. Furthermore, the recent appreciation in the Canadian dollar, which was up 6.7 percent year-on-year in September, seems to be weighing on goods prices with higher import content, noted TD Economics in a research report. Core goods prices slowed to -0.3 percent in the month, with clothing and footwear prices leading the way.

Risks around future BoC rate hikes are becoming tilted to the downside. Recent B-20 guidelines from OSFI are expected to add to the string of regulatory changes impacting the housing market, and are expected to decelerate the rate of housing activity and home prices. This would be a headwind to economic growth in the next year, helping to slow growth from its breakneck rate over the past year.

Given that inflation is still showing some signs of weakness, there is little need for urgency on the monetary policy front, stated TD Economics.

At 19:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was slightly bearish at -51.3675, while the FxWirePro's Hourly Strength Index of US Dollar was highly bullish at 134.022. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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