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Weekly Economic Letter

A walk down inflation lane

Tue, Jul 14 2009, 06:33 GMT
by Economic and Strategy Team

National Bank of Canada  |  View company's profile


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Summary

  • There has been a decoupling between headline and core inflation. At 0.1%, the former is currently accelerating at its lowest rate in 15 years.

  • Core CPI inflation, instead, has remained firm at 2% since the beginning of the year despite an economy in recession.

  • Excess capacity in the economy as whole is not a sufficient condition for service price inflation to decelerate. In times of economic weakness or contraction, the goods sector is the one usually hardest hit.

  • Thirteen of nineteen CPI components are registering higher rates of inflation than a year ago. Those where inflation is decelerating fall into two major industry groups: transportation and shelter.

  • The market may begin to price a Bank of Canada move much sooner than suggested by the BoC in its conditional pledge to keep rates at current levels through June 2010.


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Legal disclaimer and risk disclosure

This presentation may contain certain forward-looking statements about the 2009 Economic and Financial Outlook. Such statements are subject to risk and uncertainties. Actual results may differ materially due to a variety of factors, including legislative or regulatory developments, competition, technological change and economic conditions in Canada, North America or internationally. These and other factors should be considered carefully and readers should not rely unduly on National Bank of Canada’s forward-looking statements. This presentation may not be reproduced in whole or in part, or further distributed or published or referred to in any manner whatsoever, nor may the information, opinions or conclusions contained in it be referred to without in each case the prior express consent of National Bank.
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