October 14, 2011   51 notes

PREVIEW-UPDATE 1-Canada Sept inflation rate seen at 3.1 pct

WHEN: Friday, Oct. 21 at 7 a.m. (1100 GMT)REUTERS FORECASTS Sept Aug ForecastrangeHeadline CPI m/m +0.2 pct +0.3 pctHeadline CPI yr/yr +3.1 pct +3.1 pct +2.8 pctto +3.2 pctCore CPI m/m +0.2 pct +0.4 pctCore CPI yr/yr +1.9 pct +1.9 pct +1.5 pctto +2.1 pctFACTORS TO WATCH:If the forecasts are correct, headline inflation will remain above the Bank of Canada’s target range of 1 percent to 3 percent. Core inflation, which excludes volatile items like gasoline and some food, is right near the center of the band.In normal times, this would put the central bank under considerable pressure to raise rates to keep inflation from spinning out of control in coming quarters.But BoC Governor Mark Carney, and markets for that matter, are more focused on growth than on inflation, given unease over Europe’s sovereign debt crisis and signs of weak demand for Canadian goods from the key U.S. market.The bank has signaled it is in no rush to raise rates from their ultra-low target of 1 percent, even if inflation looks high.MARKET IMPACT:With investors focused on Europe and fears of contagion in the global banking system, it may take a sharp jump in inflation to alter expectations that the Bank of Canada will hold its key interest rate unchanged at 1 percent until the second half of 2012.An unexpected jump in the rate could support the Canadian dollar and hurt bonds.Lower-than-expected inflation could prompt some to see a rate cut as a more serious option for the central bank’s next move, dampening the value of the currency.The overnight index swap market is now pricing in the possibility of a rate decrease, although economists still expect the next move to be an increase.

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