Inflation report helps boost Canadian dollar

Marco Green
August 20, 2018

The strong inflation number caused the loonie to gain half a cent to 76.50 cents US.

According to Thomson Reuters Eikon, economists had expected a year-over-year inflation rate of 2.5 per cent.

At 9:35 a.m. EDT (1335 GMT), the Canadian dollar was trading 0.56 per cent higher at $1.3078 to the greenback, or 76.44 USA cents.

The country's Consumer Price Index (CPI) rose three percent on a year-over-year basis in July as higher prices for airplane tickets, tourism and gasoline pushed the rate up. This raises speculation that the Bank of Canada will raise its interest rate in September to slow inflation. The central bank raised its trend-setting interest rate to 1.5% earlier this summer.

At the same time, core inflation remained roughly stable in the month.

"If we're getting a little more pleasant talk or pleasant surprises in terms of cooler heads coming to the table to discuss the trade positions a little more rationally, I think that's certainly a positive thing and the markets should take it as such".

Reitzes noted the Bank of Montreal continues to expect the central bank to keep its key interest rate target on hold at its September 5 announcement, but raise it in October.

A 25.4% increase in the price of gasoline and a 28.2% increase in the cost of air transportation compared with a year ago helped push overall prices higher.

The rates of all eight components rose on a year-on-year basis in July.

Restaurant food has risen by 4.4 per cent in the past year, and mortgage interest costs are up by 5.2 per cent.

On the flip side, telephone service costs were down 5.1 per cent and traveller accommodations slipped 4.1 per cent compared with a year ago.

Todd Hirsch, economist with ATB Financial, says that the increase in gas prices will also affect the cost for all sorts of other goods that need to be transported.

Other reports by Click Lancashire

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