consumer prices posts

A record low increase in core consumer prices was the last thing economists expected to see, especially given recent advances in the Canadian economy. However, a record low increase is what we got, taking the pressure off the Bank of Canada to raise interest rates anytime soon.

Core inflation -- a measure of the cost of living -- rose only 0.9% in the 12 months ended February, the lowest reading since records began in 1984. In fact, a reading that low would usually cause the Bank of Canada to lower interest rates to stimulate the economy and price increases.

It turns out that Canada's economy is in much better shape than previously thought, causing economists to bring forward their predictions of an interest rate hike.

"The recovery in Canada is proceeding slightly faster than expected, and there is more evidence of the anticipated rebalancing of demand," Canada's central bank governor Mark Carney said in a statement Tuesday.

The countdown to an interest rate hike is on. Expectations of a rate rise grew even stronger Friday after official figures showed that the cost of living is rising faster than it should be.

The surprising news caused the Canadian dollar to jump above US99 cents as investors began to bet that an interest rate rise is close at hand. With the way the Canadian economy is going, it looks like U.S. dollar parity is inevitable.

The Bank of Canada has previously promised it would keep the key interest rate on hold at the record low level of 0.25% until at least the end of June, but the promise came with a 'Get Out of Jail Free' card that basically says it can raise rates sooner if inflation, or the rising cost of living, becomes a problem.