Inflation Ticks Lower In Canada, Unchanged In New Zealand - 22 January 2025

Canada’s CPI Falls to 1.8%

Canada’s Consumer Price Index (CPI) eased to 1.8% year-on-year in December, down from 1.9% in November and below the consensus of 1.9%. This is the lowest level since September 2024. Notably, this was the fifth consecutive month that headline inflation remained below the Bank of Canada’s (BoC) inflation target of 2%. Monthly, CPI declined by 0.4%, matching the market estimate and well below the November reading of 0%. The main driver of inflation in December was higher gasoline prices, while food prices dropped sharply.

Core inflation, which is a better indication of inflation trends, also eased in December. The average of two of the BoC’s core inflation indicators dipped to 2.45% from 2.60% in November.

The December CPI report indicates that inflation is moving in the right direction. The BoC continues to keep an eye on inflation but with headline inflation below 2%, the central bank is more focused on economic growth, and that means more rate cuts are likely on the way in order to boost the weak economy.

Aside from domestic concerns, the Trump factor will be on the mind of BoC policymakers. On his first day in office, Trump stated that he might levy 25% tariffs on Canada and Mexico on February 1st. Such a move would boost inflation and delay the BoC's plans to lower interest rates. The BoC meets next week and may decide to hold rates until it has a more clear idea of whether Trump intends to slap tariffs on Canada or will he reach a deal with Ottawa.

New Zealand CPI Unchanged at 2.2%

New Zealand CPI, which is released quarterly, remained unchanged in the fourth quarter at 2.2% year-on-year. This is the lowest inflation rate since March 2021 but was a shade higher than the market estimate of 2.1%. Transport prices fell but food and housing prices rose at a faster pace than in the third quarter. On a quarterly basis, inflation ticked lower to 0.5%, compared to 0.6% in Q3 and below the market estimate of 0.5%.

The inflation report was within expectations and the Reserve Bank of New Zealand is likely to stay on course for a jumbo half-point cut at its meeting in February. The cash rate is currently at 4.25% and the central bank wants to lower rates and provide a boost to the economy and ease the burden of businesses and consumers.

Canadian Dollar Slides, New Zealand Dollar Dips Lower

In the aftermath of Tuesday’s Canada inflation report and New Zealand’s inflation reports earlier today, the Canadian Dollar climbed sharply while the New Zealand Dollar moved lower.

The USD/CAD currency pair climbed 0.78% after the inflation release. The NZD/USD currency pair has declined by 0.38% on Wednesday.

Canadian Stock Market Higher, New Zealand Shows Little Change

The benchmark Canadian index, the S&P/TSX, rose 110.05 points (0.44%) on Tuesday, closing at 25,281.63.

In New Zealand, the S&P/NZX 50 declined 15.76 points (0.12%) and closed on Wednesday at 13,036.14.