Tuesday, December 18, 2007

Inflation News Could Mean Rate Cut

From CEP News:

Analysts are seeing a Bank of Canada rate cut written all over the latest inflation figures released Tuesday by Statistics Canada. The key core rate, which excludes volatile items like gas, oil and fresh fruits and vegetables, moved up just 1.6% on an annual basis in November, its slowest rate of increase since April 2006. That was below the +1.8% forecast by economists. The all-items or headline inflation rate rose 2.5%, a tick above analysts' expectations for +2.4%.

The tame growth rate in the core consumer price index "leaves the door wide open for further rate cuts in the new year, if the Bank (of Canada) decides financial conditions or the growth outlook warrant such help," said BMO deputy chief economist Doug Porter. "Suffice it to say that the current inflation outlook presents no block to lower interest rates in Canada, a very different picture from U.S. conditions, where headline inflation is almost 2 points higher and core is nudging up again."

CIBC World Markets economist Avery Shenfeld expressed similar sentiment. "The soft core reading is consistent with our projection for a January rate cut by the Bank of Canada which has the room to give the financial system a helping hand in dealing with the credit crunch," Shenfeld said.

Get the full version here

--As I said earlier, the lower prices we are experiancing may not be permanant, I would think that the bank of canada would wait for some more good inflation numbers before making another rate cut.

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