Canada Reports Higher Than Expected Inflation

Canadian CPI Data May 2022

Wednesday 16^th June 2022 saw Statistics Canada release its latest batch of CPI (inflation) data, which showed an inflationary increase beyond the forecasted consensus. This will be seen as bad news for Canada’s economy and will increase pressure on the Bank of Canada to hike rates and adopt a more hawkish tilt to monetary policy.

The data showed that Canadian CPI increased last month by 1.4%, well in excess of the anticipated increase of 1.0%. It is notable that last month’s month-on-month increase was only 0.6%, showing that the rate of increase is exponential.

Translated into annualized, year-on-year CPI, the data show inflation currently running at 7.7%, up from 6.8% in April. This is the highest rate seen since January 1983.

Food, fuel, and housing are the leading factors driving inflation.

UK CPI Data May 2022

Earlier in the day, the UK also released its latest CPI (inflation) data, which showed that the annualized rate of inflation had increased slightly as expected, from 9.0% to 9.1%.

Core inflation came in 0.1% lower than had been expected, running at an annualized rate of 5.9%, quite dramatically lower than headline CPI.

The Bank of England still expects to see UK CPI later this year as high as 11%.

Market Impact

More than 7 hours following the UK CPI data release, the following price changes were observed in key market barometers:

• GBP/USD                                                       +0.21%
• EUR/GBP                                                       +0.15%
• FTSE 100 Index                                             -0.16%

These are negligible price movements, showing the UK CPI release had no meaningful effect on the market.

More than half an hour following the Canadian CPI data release, the following price changes were observed in key market barometers:

• USD/CAD                                                       -0.20%
• TSX Index                                                      -0.18%

It seems the higher-than-expected Canadian inflation data is boosting the Canadian Dollar moderately, as the market slightly increases its rate hike expectations.

What Does This Mean for Traders?

The key takeaway from today’s releases is to expect a stronger Canadian Dollar, but so far, the effect appears to be very moderate and might disappear within a few hours.