Canadian dollar gains as accelerating inflation raises prospects of rate hike

Galtero Lara
Agosto 20, 2018

At 9:35 a.m. EDT (1335 GMT), the Canadian dollar CAD=D4 was trading 0.56 percent higher at C$1.3078 to the greenback, or 0.7644 USA cents.

The Canadian dollar gained against its US counterpart on Friday after the country's annual inflation rate accelerated by more than expected, increasing prospects that the Bank of Canada might raise interest rates next month. This raises speculation that the Bank of Canada will raise its interest rate in September to slow inflation.

Economists polled by Reuters had forecast 2.5 per cent annual inflation.

The federal agency said the consumer price index for July was up 3% on a year-over-year basis, up from a 2.5% increase in June.

It went up 2.5 percent in June, which was already the highest level in more than six years.

The Bank of Canada can raise interest rates to help prevent inflation from climbing too high.

This one month number hasn't made a trend, says Benjamin Reitzes, Canadian rates and macro strategist at the Bank of Montreal, and core inflation remains stable.

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Canada's inflation rate surged to 3.0 percent in July, fueled by rising global prices for crude oil, according to government data released Friday.

"At this point it would take more than one month I think to really change the narrative generally around inflation", he said.

Higher gasoline prices helped push the country's annual inflation rate in July to its highest reading since September 2011, it added.

All eight major components of the consumer price index rose on a year-over-year basis in July with the transportation index being the largest contributor with an 8.1% increase.

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.

And recent interest rate hikes pushed up mortgage rate costs.

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