"I do think the real story here is on core inflation, the fact that we're now just about scraping the very low end of the comfort zone for the Bank of Canada"
- Doug Porter, chief economist at BMO Capital Markets
Inflation is characterised by a sustained and rapid growth in prices, as measured by indicators like Consumer Price Index or Producer Price Index over months or years. The healthy inflation level is considered to be around 2%, suggesting the economy is gaining momentum. Canada, however, has been suffering from weak inflationary pressure for 19 months, making it a top concern for BoC policymakers.
Friday's report fuelled speculations the central bank will have to pull the trigger, as consumer prices rose just 0.9% in November, following a 0.7% gain a month earlier. The core CPI, which excludes volatile products, decelerated to 1.1% from October's 1.2%. The only welcoming sign is that six out of eight major components tracked by Statistics Canada, registered price gains. The Bank of Canada, however, targets inflation in a range between 1% and 3%, hence it has almost reached the threshold level. Earlier this year, BoC Governor Stephen Poloz has already dropped his bias toward rate hikes, citing lagging inflation and disappointing growth figures. Nobody believes the bank will cut rates; however, taking into account low inflation, markets can heat up debates of a more dovish comments from the central bank in the year of 2014.
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