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Canadian inflation rate slows, remains steady in New Zealand as of January 22, 2025

Inflation Ticks Lower in Canada, Unchanged in New Zealand – 22 January 2025

As the world continues to grapple with the challenges of persistent inflation, two major economies in the Asia-Pacific region, Canada and New Zealand, have just released their latest inflation figures. According to the data, Canadian inflation fell to a slightly lower level than expected, while New Zealand’s inflation rate remained unchanged from the previous quarter. In this article, we’ll delve into the details of these releases and explore what they mean for the economies and investors.

Canada: Inflation Cools Off

Canada’s inflation rate for November 2024, as measured by the Consumer Price Index (CPI), fell to 2.4% year-over-year, slightly lower than the expected 2.5% reading. This marks a decrease from the previous month’s 2.5% rate and brings the overall inflation trend down to its lowest level since June 2024. The decrease was mainly driven by a fall in the cost of food, which dropped 1.6% from the previous year, compared to a 2.5% increase in the previous month.

This sudden drop in inflation could be attributed to several factors. Firstly, the COVID-19 pandemic has continued to affect global demand, leading to a decrease in international commodity prices. This, in turn, has had a positive impact on Canadian import prices, which have been falling since late 2024. Secondly, the Bank of Canada’s monetary policy, which has maintained interest rates at historical lows, has helped to reduce borrowing costs and alleviate inflationary pressures.

The Canadian dollar reacted positively to the news, strengthening against the US dollar and other major currencies. The currency’s appreciation is likely to have a positive impact on Canadian exports, as a weaker currency can make them more competitive in the global market. However, the Bank of Canada is still expected to maintain its cautious approach, as inflation remains above the central bank’s 2% target.

New Zealand: Inflation Stays Put

New Zealand’s Consumer Price Index (CPI) for the fourth quarter of 2024 remained unchanged at 3.5% year-over-year, in line with market expectations. This result suggests that inflationary pressures in the economy have stabilized, with no significant acceleration or deceleration observed.

The stability in New Zealand’s inflation rate can be attributed to a combination of factors. Firstly, the country’s economy has continued to benefit from strong agricultural production, which has boosted domestic demand and anchored prices. Secondly, the Reserve Bank of New Zealand’s monetary policy has been effective in controlling inflation, with interest rates remaining steady since late 2024.

The New Zealand dollar reacted cautiously to the news, maintaining its recent trading range against major currencies. While the inflation data was within expectations, the markets will continue to closely monitor the economic indicators, particularly employment and wage growth, to gauge the likelihood of future rate changes.

Implications for Investors and the Economy

The divergent inflation paths in Canada and New Zealand have significant implications for both economies and investors. In Canada, the cooling of inflation is likely to pave the way for a more accommodative monetary policy, potentially leading to lower interest rates and a stronger currency. This could have negative implications for the Canadian bond market, as interest rates may fall further, driving yields down.

In contrast, New Zealand’s stable inflation environment could lead to a more neutral monetary policy, with the Reserve Bank of New Zealand possibly tightening rates to keep inflation in check. This may lead to higher bond yields and a stronger currency, making New Zealand’s assets more attractive to international investors.

For investors, these developments present both opportunities and challenges. In Canada, the possibility of lower interest rates may lead to higher demand for fixed-income securities, driving up bond prices. However, this may also increase the risk of inflation, as lower interest rates can stimulate economic growth and fuel price pressures.

In New Zealand, the expected stability in inflation may result in a more predictable policy environment, potentially attracting investors seeking higher yields and lower volatility. On the other hand, the country’s strong currency may make its exports less competitive and, therefore, negatively impact economic growth.

Canadian Inflation Rate Slows, Remains Steady in New Zealand as of January 22, 2025