Release Explanation: The CPI measures the average price of a fixed market basket of goods and services purchased by consumers, and therefore give an overall read of inflationary pressures. It is the most widely used Inflation indicator of central banks, institutions, and governments. It is used to calculate cost of living numbers for government programs. “Each regional central bank will have their own CPI target rate, and each will differ in line with the way they individually want to control the aspects of their own economies.” Trade Desk said. Trade Desk Thoughts: The core rate of inflation rose more than expected in March coming in at 0.3%, higher than the 0.2% expected. The CPI number came in at 0.2%, below the 0.3% expected. 

The upward pressure on the Consumer Price Index (CPI) came primarily from two sources: higher food and shelter costs.

Food prices, the largest factor, rose 7.9% during the 12-month period to March, on the heels of a 7.4% rise in February. March's increase was the largest since November 1986. Mitigating the overall increase in the CPI was a 6.2% decline in transportation costs. Year-over-year price drops for gasoline and for purchasing and leasing passenger vehicles were the primary downward contributors.

Excluding gasoline, the CPI rose 2.4% in the 12 months to March. Overall, energy prices fell 11.2% during the same period, a larger drop than February's decline of 8.8%.

“The release shows that core prices are on an upward path in Canada, something that might prove dangerous on the medium to long term,” Trade Team said. “The recent rate-cuts made by the Bank of Canada will only fuel more inflation in the coming months, something that may ultimately force the central bank to raise the interest rate. Except for the transportation index, every other category recorded gains from one year earlier,” they added.

Forex Technical Reaction: The cad made a 20-pip spike during the news release. However, in the minutes before the CPI report, the Canadian dollar recovered most of the pips lost during the overnight session.