Canadian CPI surprised to the upside in October, printing 2.4%, rising from 2.2% in September and beating expectations of remaining unchanged. Core CPI also improved over the month, rising to 2% from 1.9% over the prior month.
Volatility in airfares accounted for a large part of the gain on the month with costs rising 4.6%, on the back of a 16.6% decline over the prior month which came on the back of a rise of similar proportions in July.
It is likely that the abnormal volatility seen in airfares is due to the introduction of a new methodology/sample which was put in place earlier in the year. Energy prices added further upside pressure over October rising 7.9% from a year earlier despite weakness in gasoline prices. Food was also higher on the month rising 2% from 1.8% in September and mortgage costs were up 7%, year on year, in October.
While the data is indeed positive, it is unlikely to be enough to spur the BOC into increasing rates further at the upcoming December rates meeting in a couple of weeks. Given the heavy sell-off in oil prices, we are likely to see this start feeding through into lower inflation once we get the November readings.
After breaking the long-term bearish trend line from 2016 highs, you can see that price is now being capped by the medium-term bearish trend line from 2017 highs which is acting as resistance for now. The latest rally in USDCAD saw price trading up to just shy of retesting the 2018 high at 1.3377 which for now, remains the key upside level. To the downside, the 1.2929 level, late 2017 broken highs, is the first support zone to watch.