HiFX: Foreign Exchange Specialists

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June 19, 2008

Today’s release of the Core CPI for the month of May saw inflation remain unchanged at 1.5% y/y.  The absence of a significant up tick would ordinarily suggest there is little need for the BoC to tighten monetary policy.  However, with inflation being primarily fuelled via higher energy prices the BoC will be concerned over the fact the that headline inflation reading jumped up by 1.0% m/m leaving the annual rate of inflation standing at 2.1%, a high since 1991.  While the BoC will not take their cue from the headline reading they are starting to monitor the release closely.  Overall the inflation data has increased speculation that the BoC will continue to remain neutral on rates over the near term with the possibility of a rate hike later in the year.  As a result the Canadian dollar jumped 0.7% against the U.S. dollar.