The annual inflation rate rose a less-than-expected 1.3 per cent in December, said Statistics Canada, and core inflation stayed at 1.5 per cent - a half a percentage point below the Bank of Canada's target rate.
In addition, consumer prices dropped last month.
"The way markets look at it is that because inflation remains subdued, it puts even less pressure on the Bank of Canada to raise interest rates and that softens the currency," Bank of Montreal chief economist Douglas Porter told The Canadian Press. He added that business can't raise prices due to the weakness of the economy and the strength of the Canadian dollar has quashed import prices.
Bond yields continue their decline and are hovering around 2.55% this week.
What does this mean? Inflation is the driver for the short term lending rates set by the BoC so there is no reason for the bank rate to move up. 5 year bond yields drive the fixed term rates, indicating the long term rates should hold steady as well.
There is still time to take advantage of the low rates!
peter_mckinnon@centum.ca
http://www.peterlmckinnon.com
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