Preview: Canada CPI - Where Next For USD/CAD As It Tests Key Support

Release: CAN CPI m/m (Dec)
Consensus Forecast: -0.1%
Previous: 0.1%
Release: CAN Core-CPI m/m
Consensus Forecast: -0.2%
Previous: 0.1%
Date/Time: 01/20/12 – 7AM ET (12:00 GMT)
Softer Inflation Means No Pressure on BOC, Can Hold Rates Steady for Longer

The Bank of Canada interest rate decision and statement has come and gone.

On the inflation front, 'the profile for inflation is marginally firmer' and that 'several significant upside and downside risks are present in the inflation outlook' the BOC said.

Which way will inflation go, to the upside or the downside? In Friday's session we get the latest reading on consumer prices from Canada – for December – and the expectation is for some disinflation to show up in the data.

The headline CPI is expected to decline 0.1%, while core CPI is expected decline 0.2%. That compares to a 0.1% gain in both the headline and core rate in November.

If inflation does ease it lessens any pressure on the Bank of Canada to raise interest rates sometime in 2012.

In fact most economists now expect the bank of Canada to remain on hold throughout all of this year, raising interest rates only in the first half of 2013.

The factor that would speed up this timetable would be if inflation showed persistent stronger-than-expected gains.