CPI, Interest Rates, C$ And The Bank Of Canada

On Friday, StatsCan released the June CPI data which showed a 1% increase from a year earlier. A big drop in gasoline prices (-1.4%) and clothing and footwear were responsible for a lower year over year reading from the 1.3% reported for the 12 months ending in May. If you live in Alberta the cost of living was up only 0.4% over the last year.

What does it all mean?

At the moment inflation remains well below the Bank of Canada's 2% target as do their various measures of core inflation:

Obviously it is their expectation that this will change in the future because they are responsible for price stability and a higher policy interest rate is intended to curtail future inflation, which their longer term forecasts must be reflecting.

Bank of Canada economic forecasting has been suspect in the past, having been overly optimistic (on economic growth) through the 2015-2017 period. Needless to say, questioning their overly optimistic outlook on future economic growth and inflation should be a consideration.

Nonetheless, they control the interest rate mechanism (for short-term interest rates), so that is their prerogative. 

Foreign exchange traders and speculators who all got caught on the wrong side of the $US/$C trade have been forced to scramble to cover their short C$ positions over the last few weeks and perhaps take on long C$ positions. If you have $US obligations (or are planning your winter travel to a warmer climate and require $US), this may be a time to think about making some $US purchases.

But don't do it through a bank! They will over-charge you by about 2% or more. We can do it at much better rates for our High Rock clients because we are an institutional portfolio management company (with a private client division) and we do not take spreads on transactions (as they might through the traditional advice institutions), but pass the cost savings directly to our clients.

We will talk about all this and more on our High Rock weekly client webinar tomorrow (we have a bit of a new format). The recorded version will be posted on our website at or about 5pm EDT. Feel free to tune in.