Canadian consumer prices accelerated above expectations in February

Canadian consumer prices accelerated more than expected in February. On a year-on-year basis, headline inflation accelerated to 2.2 percent, as compared with consensus expectations of 1.9 percent. The acceleration in price growth was widespread, with all major categories but food and clothing and footwear picking up speed in t he month. The biggest rise year-on-year was in energy prices but excluding food and energy prices also accelerated to 1.8 percent year-on-year.

The Bank of Canada’s core price measures indicated a clear firming trend with the CPI-common moving up to 1.9 percent and 1.8 percent, respectively. Therefore, the average of the three measures rose slightly above 2 percent in January.

After many months below 2 percent, inflation pressures have picked up and have moved on top to the central bank’s target. As noted, the move higher seems widespread, as seen by all three of the Bank of Canada’s core measures, which aim to strip out idiosyncratic price movements.

The central bank’s latest dovish tone might surely be challenged in light of today’s strong core inflation figures. Still, the Bank of Canada’s inflation target is symmetric: a slight overshoot of 2 percent is no ‘worse’ than an undershoot, and it is possible that minimum wage gains are pushing core measures higher – an effect that should be discounted.

“All told, today's data does create the risk that the Bank of Canada moves sooner, but with downside risks to the economic outlook still elevated, this summer remains most likely to see the next policy interest rate hike”, said TD Economics.

At 17:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was bullish at 99.4134, while the FxWirePro's Hourly Strength Index of US Dollar was highly bearish at -105.953. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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