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CAD: Depreciation not yet a risk to inflation - CIBC

Analysts at CIBC see the USD/CAD rally not posting risks to the inflation outlook in Canada. They expect that the Loonie to rise during 2019.  

Key Quotes: 

“The C$ dropped by around 3.5% on a trade weighted basis in the final quarter of 2018, with much of that coming against the US$. However, while the weaker loonie will result in higher inflation for many imports, the direct impact on CPI is unlikely to be big enough to sway the Bank of Canada into action without an accompanying acceleration in growth.”

“While BoC research showed than the direct import content in CPI has risen steadily, that was mainly because of China and to a lesser extent European imports. The contribution coming from the US has remained relatively steady.”

“While we expect the C$ to average slightly stronger than current levels in 2019, that will be driven mainly by a rebound in oil price and growth prospects rather than a big inflation pick-up.”

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