Canada’s Inflation Turns Negative for First Time in 11-yrs

Canada’s Inflation Turns Negative for First Time in 11-yrs
May 21, 2020


The pound fell against the Canadian dollar yesterday after the release of lower-than-anticipated consumer price index (inflation) data from the UK. The release of worse-than-expected PPI Input/Output data also contributed to the decline. Notably, Canada’s inflation data also missed analysts’ estimates. However, the ongoing crude oil price rally is providing the necessary impetus to the Canadian dollar. In the past 24 hours, the GBP/CAD pair declined from a high of 1.7090 to a low of 1.7010.

The UK Office for National Statistics (ONS) stated that the consumer price index rose 0.8% m-o-m in April, compared with a 1.5% increase in the prior month. Economists had anticipated the consumer price index to increase by 0.9%. On a y-o-y basis, the consumer price index rose 1.4% in April, compared with an increase of 1.6% in the earlier month. The reported figures were in accordance with the economists’ estimates.

The ONS also stated that producer price index (input inflation for raw materials entering the factory) declined 5.1% m-o-m in April, following a 3.8% fall in the earlier month. Economists had anticipated the PPI Input to decline by 4.2%. The PPI reflecting the output inflation for goods leaving the production facilities declined 0.7% m-o-m in April, following a 0.2% slump in the earlier month. Analysts had anticipated the PPI to decline by 0.5% for the reported month. The decline was mainly driven by a steep drop in the price of petroleum products.

Statistics Canada reported that the consumer price index declined 0.7% m-o-m in April, following a 0.6% decrease in the earlier month. The reported figures were a notch above the 0.6% drop anticipated by economists. Excluding volatile goods, core CPI declined 0.4% m-o-m in April, following a 0.1% increase in the earlier month.

On a y-o-y basis, the consumer price index deteriorated 0.2% in April, following a 0.9% increase in March. It was the first year-on-year drop in the CPI since September 2009. The steep decrease in the energy process was primarily responsible for the drop in CPI. Barring energy, on a y-o-y basis, the CPI increased 1.6%.

The statistical organization also stated that wholesale sales decreased 2.2% m-o-m in March, compared with a 0.3% increase in the earlier month. The reported data was much better than the 4.5% drop anticipated by analysts.

In value terms, wholesale sales dropped to $63.90 billion in March, following three successive monthly gains. Of the seven subsectors, three of them recorded lower sales, representing 29% of overall sales. The steep drop in the sales of motor vehicle and spare parts mainly contributed to the decline. In volume terms, wholesale sales decreased 2.8%. Barring the automobile sector, wholesale sales increased 2.1%. In 1Q 2020, sales rose 1.4%, following a 1.4% drop in 4Q 2019.

In the commodity market, WTI (West-Texas Intermediate) crude continued its onward March to hit $32.94 per barrel, reflecting a gain of 3.07% or $0.98 from the prior close. Similarly, Brent crude rose 3.55% or $1.23 to trade at $35.88 per barrel.

The mixed economic data from both the UK and Canada, and the ongoing crude oil rally is anticipated to keep the GBP/CAD pair range-bound with a slight bearish bias.

CAD - technical analysis - 21st May 2020

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.


Andrew Wright

Prior to founding in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.

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