• Headline CPI came in at 4.7% YoY, in line with forecasts. 
• But the BoC's Core measures of inflation were hotter than expected. 

The annual rate of headline Consumer Price Inflation (CPI) in Canada rose to 4.7% in October, in line with median economist forecasts and up from 4.4% in September, according to data published by Statistics Canada on Wednesday. MoM, headline CPI rose at a pace of 0.7%, also in line with forecasts. 

The Bank of Canada's Core CPI measure, which excludes food and energy prices, saw a surprise jump to 3.8% YoY from 3.7% last month. The median analyst forecast was for the YoY rate to fall to 3.5%. The increase was driven by a faster than expected 0.6% MoM jump in the Core price index, which was above expectations for a 0.4% MoM rise. 

Market Reaction

USD/CAD has seen kneejerk strength in wake of the inflation data, despite the BoC Core measures coming in hotter than expected. The pair jumped from around 1.2550 to current levels in the 1.2570s, where it currently trades higher by about 0.2% on the day. Perhaps some market participants had been positioned for a positive surprise on the headline measures of inflation.

Nonetheless, with inflationary pressures continuing to rise in Canada in October, pressure is growing on the BoC to respond with policy tightening. Money markets are betting their first rate hike will come in Q1 2022, despite the insistence from monetary policymakers that the output gas won't be closed until the middle quarters of 2022 (a necessary condition the bank has laid out for rate hikes).