Canada’s inflation rate saw a slight decline in December 2024, according to Statistics Canada. The Consumer Price Index (CPI), which measures changes in the cost of goods and services, rose by 1.8% year-over-year. This marks a small step down from November’s 1.9% increase and fell slightly below analysts’ expectations of 1.9% growth. On a monthly basis, prices contracted by 0.4%, following a flat reading in November.
Table of Contents
Core Inflation Shows Mixed Signals
The Bank of Canada’s Core CPI, which excludes volatile components such as food and energy, indicated signs of strengthening. It increased by 1.8% year-over-year in December, up from November’s 1.6% rise. However, on a month-over-month basis, core inflation declined by 0.3%, extending the 0.1% drop recorded in the previous month.
Market Reaction to Canadian CPI
The Canadian Dollar (CAD) faced renewed selling pressure following the release of December’s inflation data. The USD/CAD pair climbed above the 1.4500 mark, reaching new yearly highs as the loonie struggled against its American counterpart.
Canadian Dollar Performance
The table below illustrates the Canadian Dollar’s performance against major currencies:
| Base Currency | USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF |
|---|---|---|---|---|---|---|---|---|
| USD | 0.45% | 0.51% | -0.05% | 0.83% | 0.59% | 0.65% | 0.32% | |
| EUR | -0.45% | 0.07% | -0.45% | 0.39% | 0.16% | 0.22% | -0.12% | |
| GBP | -0.51% | -0.07% | -0.55% | 0.32% | 0.08% | 0.14% | -0.21% | |
| JPY | 0.05% | 0.45% | 0.55% | 0.86% | 0.62% | 0.67% | 0.34% | |
| CAD | -0.83% | -0.39% | -0.32% | -0.86% | -0.24% | -0.18% | -0.53% | |
| AUD | -0.59% | -0.16% | -0.08% | -0.62% | 0.24% | 0.06% | -0.28% | |
| NZD | -0.65% | -0.22% | -0.14% | -0.67% | 0.18% | -0.06% | -0.35% | |
| CHF | -0.32% | 0.12% | 0.21% | -0.34% | 0.53% | 0.28% | 0.35% |
Factors Influencing Inflation Trends
Interest Rate Policy
The Bank of Canada (BoC) has made significant adjustments to its monetary policy, lowering its benchmark interest rate by 175 basis points throughout 2024. The current policy rate stands at 3.25% as of December 11, following a 50-basis-point cut earlier in the month. Debate within the BoC’s council regarding the size of the cut highlights economic uncertainties.
Canadian Dollar Under Pressure
The CAD has been steadily losing ground against the USD, reaching levels not seen since May 2020. The USD/CAD exchange rate recently breached the 1.4500 mark, largely driven by a strong US Dollar and fluctuating crude oil prices. Analysts expect further depreciation in the near term.
Preview of Upcoming Inflation Data
Statistics Canada is set to release its January 2025 inflation report soon. Analysts forecast CPI to edge higher to 2.0% year-over-year, with prices expected to fall by 0.2% month-over-month. Food prices and a weakened loonie could provide upward pressure on inflation, although seasonal trends in core goods may weigh on overall figures.
USD/CAD Defends Bullish Momentum Amid Turbulence: Will the Breakout Materialize?
Canadian Dollar’s Bullish Recovery Stalls on Tuesday
Will a Weak Canadian Dollar Stoke Inflation? The Ripple Effect
Are Americans Profiting from a Weak Canadian Dollar?
USD/CAD Rises Amid Trump’s Tariff Threat Canadian Dollar Outlook
Key Levels to Watch for USD/CAD
According to Pablo Piovano, Senior Analyst at FXStreet, USD/CAD may revisit the January 2024 peak of 1.4485 and possibly aim for the 2020 high of 1.4667. On the downside, initial support levels include 1.4278 and the psychological threshold of 1.4000.
Conclusion
Canada’s December inflation data highlights a mixed economic outlook, with easing headline inflation and a strengthening core CPI. The Bank of Canada’s monetary policy and the Canadian Dollar’s performance remain critical factors for future trends. As the nation navigates these economic challenges, upcoming inflation reports will offer valuable insights for policymakers and market participants alike.
Leave a Reply