Canada's December Inflation Falls Back to Target Range, Economic Recovery Steady

Data Interpretation

Summary:

In December 2024, Canada's CPI reached its lowest level since 2020 and returned to the central bank's target range for the first time. Although it will take time to return to historically low inflation rates, this data indicates initial success in controlling inflation. However, potential trade risks remain a concern.

On January 21, Statistics Canada released the December CPI annual report:

In December, the Consumer Price Index (CPI) rose 1.8% year-on-year, down from 1.9% in November. CPI excluding food rose 2.1% year-on-year.

The data shows that Canada's annual average inflation rate decreased from 3.9% in 2023 to 2.4% last year. While this marks the lowest level since 2020, it remains above the pre-pandemic annual average, indicating a slow but steady pace of returning to historical inflation levels. Excluding the pandemic peak years of 2021 to 2023, the average CPI for 2024 is the highest since 2011.

Breakdown of Data:

The federal government's GST holiday contributed to price declines across several categories, with the most notable drop in restaurant food and beverage prices, which fell by 1.6%.

Despite this, housing prices rose by 4.5% in December, slightly lower than the 4.6% increase in the previous month.

Due to base-year effects, gasoline prices increased by 3.5%.

While goods prices showed significant deceleration, service prices continued to rise. Since December 2021, rental prices have increased by 22.1%. Food purchased from restaurants and alcoholic beverages from stores contributed the most to the slowdown.

This inflation data largely met expectations, with core inflation easing, providing room for the central bank to cut interest rates. Overall, Canada experienced strong employment and robust economic growth last year, with moderate core inflation. However, potential trade tariffs could disrupt progress. Despite the notable data fluctuations, underlying inflation is near 2%, and the Bank of Canada may cut interest rates by 25 basis points next week.

Canada's December CPI

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Commodity

Energy – Freeport outage sees TTF surge

The oil market’s attention is slowly turning away from US sanctions against Russia towards President Trump’s potential trade policy, which saw Brent settle below US$80/bbl yesterday. The president has reiterated his threats to impose a 25% tariff on imports from Canada and Mexico, potentially by 1 February. Overnight, he also threatened 10% tariffs on China in retaliation to fentanyl flows from the country, which has kept some pressure on oil prices in early morning trading in Asia today. Clearly, trade and tariff risks and the potential for retaliation are growing.

The European natural gas market surged higher yesterday with TTF settling more than 4.5% higher on the day and above EUR50/MWh – the highest level since the first trading day of 2025. The catalyst for the move appears to be an outage at the Freeport LNG export terminal in the US, which has been dealing with power issues which coincide with the freezing weather conditions the region is currently experiencing. Freeport, which has a capacity of a little more than 20bcm, said the plant will remain shut until power to the plant stabilises. Europe needs to pull in more LNG this winter with the loss of Russian pipeline flows through Ukraine, along with also stronger demand. EU gas storage has now fallen to 59% and the region will need to try to make sure it stays above the European Commission’s target of 50% full by 1 February.

In addition, Germany is potentially looking at subsidising the refill of gas storage ahead of the 2025/26 winter, a discussion we are likely to see more of across the EU with the TTF forward curve providing little incentive for players to store gas for the next winter with summer 2025 prices trading at a premium to 2025/26 winter prices.

Metals – Complex declines as Trump plans tariffs on Canada and Mexico

Base metals declined yesterday after US President Trump said, on his first day back in power, that he will likely impose tariffs as high as 25% on Mexico and Canada by 1 February. Trump also indicated that he was still considering a universal tariff on all imports to the US, but said he was “not ready for that yet”. This has raised prospects of renewed global trade conflict once again.

Tariffs are the biggest risk to our industrial metals outlook. We believe with President Trump back in the White House, the downside risks have increased for industrial metals.

Agriculture – CONAB lowers coffee output estimates

Brazil’s agriculture agency, CONAB lowered its coffee production estimates for 2024/25 as adverse weather conditions last year and at the end of 2023 resulted in reduced yields. In its recent survey, CONAB estimates total coffee production in Brazil to fall 1.6% year-on-year to 54.2m bags in 2024/25, below the previous estimates of 54.8m bags. The agency said that the Arabica coffee production projections were little changed at 39.6m bags. However, this was still 1.8% above last season’s output. Meanwhile, Robusta coffee production estimates fell from its previous estimate of 15.2m bags to 14.6m bags (-9.6% YoY). However, the market is more focused on how the 2025/26 crop develops with the harvest set to start in April. There have been concerns over the upcoming crop given the dry weather conditions seen over much of 2024.

Recent estimates from the Brazilian Association of Vegetable Oil Industries (ABIOVE) show that soybean production could rise 11.9% YoY to 171.7mt in 2025, up from its previous forecast of 168.7mt. Similarly, soybean export estimates were raised by 1.7mt to 106.1mt, while 2024 export estimates were increased from 98.3mt to 98.8mt. Meanwhile, soybean ending stock estimates were raised to 9.8mt this year, up 2.2% from its earlier forecast. In 2024, ending stocks declined by 22% YoY to 3.6mt.

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Owen Li

Data Interpretation

On January 22 (local time), Statistics New Zealand released the Q4 annual CPI report:

In Q4 2024, the CPI rose by 0.5% quarteronquarter and 2.2% yearonyear, consistent with the previous quarter and in line with expectations from the Reserve Bank and economists.

The data shows that New Zealand's annual inflation rate has remained within the central bank's 1%-3% target range for two consecutive quarters. After reaching a peak of 7.3% in 2022, inflation has now fallen to 2.2%, its lowest level since Q2 2021. This trend validates the central bank's decision to ease monetary policy in August last year. Although high interest rates led to a period of deep economic recession, inflation has recently shown significant moderation.

Key Data Highlights:

Domestic and international airfares rose by 9.3% and 6.6%, respectively, while holiday accommodation prices increased by 3.4%, making them the main drivers of Q4 inflation, accounting for 6% of the CPI basket.

Insurance premiums, influenced by natural disasters and inflation, increased by 11.2% annually, contributing significantly to the CPI.

Falling import prices were a key factor in reducing the annual inflation rate. In Q4, tradeable inflation was 1.1%, while nontradeable inflation dropped to 4.5%, below market expectations.

Core inflation indicators, excluding food and energy, approached the Reserve Bank's midpoint target of 2%, with core CPI falling from 3.1% to 3%.

Rent increases of 4.2% were the largest contributors to inflation, accounting for 18% of overall inflation, followed by local government rates, which rose by 12.2%. Meanwhile, gasoline prices and fruit and vegetable prices fell by 9.2% and 14.6%, respectively, partially offsetting other price increases.

Although some costs remain "sticky," the overall trend in inflation has slowed significantly, with core inflation nearing the target range.

Source: Statistics New Zealand

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Economic

There's been a whirlwind of news, threats, and plans on potential US trade policy in recent months, with figures like 10%, 25%, or 60% tariffs, new geographical names, and potential changes to the US landscape. Now, after all this anticipation, President Trump has ordered a comprehensive investigation into America’s trade policy, divided into three key areas, and it's set to conclude by April.

Potentially, a massive overhaul of current trade policies

To address unfair and unbalanced trade, the Secretary of Commerce and the U.S. Trade Representative will investigate trade deficits, unfair practices, and currency manipulation, recommending measures such as tariffs and new agreements. They will review the USMCA, existing trade agreements, and federal procurement impacts while assessing the feasibility of an External Revenue Service (ERS) to collect trade-related revenues. Additionally, they will tackle issues related to anti-dumping duties, counterfeit products, discriminatory taxes, and the duty-free exemption's impact on tariff revenues.

Intense investigations into trade policy with China will include reviewing the trade agreement for compliance, assessing the 2024 report on China's practices, investigating unreasonable practices, and reviewing legislative proposals. The Secretary of Commerce will also evaluate U.S. intellectual property rights in China and recommend measures for balanced treatment.

Additional economic security measures will be investigated, such as reviewing the U.S. industrial and manufacturing base for necessary import adjustments, assessing the effectiveness of import measures on steel and aluminium, evaluating national security technologies, and examining the impact of foreign subsidies on federal procurement to propose measures to combat distortions.

April deadlines loom for trade reviews: Will Trump invoke IEEPA before that?

The results of those reviews and recommendations are to be delivered in three reports by 1 April 2025 and the report on foreign subsidies on U.S. federal procurement by 30 April.

That doesn’t mean, however, that President Trump will not make use of his wild card, i.e. invoking a national emergency using the International Emergency Economic Powers Act (IEEPA). By invoking IEEPA, tariffs could come into effect immediately. To declare a national emergency under the Act, the President must issue a written proclamation or executive order specifying the nature of the threat and the legal basis for invoking it. This proclamation must be sent to Congress and published in the Federal Register. The declaration can take effect immediately or at a specified future date.

Congressional approval is not required, although it is advisable to consult with Congress beforehand. However, Congress has the authority to approve or disapprove the action. If Congress approves, no further steps are necessary. If Congress disapproves of invoking IEEPA to impose broad tariffs, it can:

Terminate the national emergency through a joint resolution of disapproval using NEA procedures. Like a law, the resolution would need either a simple majority in both chambers and the President's signature or both chambers would need to override the President's veto by a 2/3 majority.Amend IEEPA to limit its use for imposing tariffs. Several bills were introduced in the 116th Congress to restrict IEEPA following President Trump's 2019 tariff threat against Mexico but were not approved or enacted into law.

While there would be legal backlash, as the Act has never been used for tariffs, it remains far from clear whether this would result in a successful legal challenge. It's worth noting that President Nixon declared a national emergency in 1971 to justify imposing a 10% additional tariff on all imports entering the US but under a different law.

Canada and Mexico remain in the spotlight for the time being

President Trump's commitment to invoking IEEPA was evident when he addressed reporters in the Oval Office on inauguration day. He announced that tariffs of 25% on Mexico and Canada could take effect starting 1 February.

With more than 15% of all US imports coming from Mexico and 13.7% from Canada in 2023, about a third of everything the US imports would be affected by unilateral tariffs, potentially disrupting supply chains and impacting the economy significantly. Mexico’s share of US imports exceeds 25% in seven categories, Canada’s share of US imports exceeds 25% in 20 HS2 (Harmonized System Code) categories.

These categories include agricultural products, food and beverages, automobiles, metals, wood, and industrial products. As a result, everyday items, including a typical US breakfast, could see a significant price hike this year, in addition to already soaring coffee prices.

To stay updated on all economic events of today, please check out our Economic calendar

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Cohen

Economic

What the year means for India’s ascent

It is an especially pivotal year in advancing regional commitments, such as the Addis Ababa Action Agenda on Financing for Development, which will also evaluate progress in mobilising resources.

Amid these global shifts, India stands at a critical juncture. The world’s most populous democracy faces a turbulent landscape of geopolitical rivalries, technological shifts and the urgency of climate action. The question remains: will global economic forces propel India toward leadership or will they impede its ascent?

Since the Middle Ages, India’s economic journey has been shaped by its participation in global trade and financial shifts. After a period of insulation, the 1990s marked its gradual reintegration into the global economy. Yet today, the stakes are higher than ever. With a slowing global economy and unpredictable global financial conditions, India must navigate external headwinds while fostering domestic resilience.

Geoeconomic recalibration

The world’s economic order is increasingly fragmented, driven by rivalries shaping trade, technology and financial flows. This disruption creates both risks and opportunities for India. The country’s recent push to settle trade in rupees instead of dollars indicates an ambition to assert greater economic sovereignty. However, limited international adoption of the rupee and complex relationship management across competing blocs emphasise the challenges of asserting such sovereignty in a fragmented world.

The global economy is beginning to reflect the effects of shifting demographics, including ageing populations, uneven consumption patterns across sectors and regional variations in savings behaviour. Some areas are seeing elevated savings post-pandemic while others are experiencing declines. Additionally, advanced economies are projected to grow at a modest 1.4% in 2025, while India’s economy is expected to expand by at least 6.3% – outperforming advanced and emerging markets. However, slower growth in advanced economies could dampen demand for Indian exports, particularly in IT and manufacturing sectors.

The challenge lies in sustaining domestic reform momentum while recalibrating India’s global strategy. Domestic self-sufficiency and external engagement must work together to ensure India’s resilience against global uncertainties over the coming decades.

The debt-climate-development nexus

Compounding these challenges is the issue of debt. At $307tn, global debt has reached unprecedented levels, heightening vulnerabilities. For many economies, supply-side bottlenecks and climate-related shocks exacerbate fiscal pressures, reducing their capacity to fund development and climate adaptation. India’s debt-to-gross domestic product ratio – at approximately 83% – is lower than that of many advanced economies but remains elevated compared to pre-pandemic levels. Fiscal prudence will therefore be critical to ensuring sustainable growth. Effectively absorbing budgetary resources as well as leveraging external financing for infrastructure and renewable energy projects will be key to addressing long-term development needs.

Moreover, emerging markets faced nearly $1tn in capital outflows over the past year, exposing the fragility of global investment flows. While India’s macroeconomic fundamentals have provided some insulation, managing the volatility of international capital markets remains a challenge. Foreign exchange reserves, though substantial, may fall short of the scale and flexibility required to meet India’s funding needs in a highly competitive global environment.

Advancing climate resiliency

The climate crisis presents both a challenge and an opportunity for India. As one of the most climate-vulnerable nations, India faces the dual task of mitigating risks and leading green energy transitions. Initiatives like the International Solar Alliance highlight India’s commitment to shaping the global green agenda.

However, climate finance remains a critical bottleneck. COP30 will test India’s ability to advocate for equitable finance mechanisms while balancing domestic fiscal priorities. India must align its climate resilience efforts with broader domestic development goals to lead on climate action effectively.

The digital revolution

There is, however, an avenue for India to assert global leadership and that is in the frontier of space technology, artificial intelligence and digital finance. The Unified Payments Interface, a homegrown digital payments system, has revolutionised financial inclusion, particularly in rural areas, and inspired adoption by other countries. This positions India as a global innovator in digital finance.

India must leverage its digital revolution to achieve economic objectives, create high-quality jobs and boost productivity to build on this momentum. However, this transformation carries risks, including cybersecurity threats, consumer protection concerns and regulatory complexities. Robust institutions, effective governance and resilient capital markets are essential to cement India’s leadership in digital finance and redefine its future.

What 2025 holds

2025 will be a litmus test for India’s ability to align immediate policy actions with its long-term vision of becoming a developed, equitable and sustainable nation by 2047 – its centenary as an independent republic. Achieving this vision requires clear, measurable milestones and, most importantly, broad social and political consensus.

India’s transformative reforms in labour markets, climate policy or digital governance must address public skepticism and ensure fairness, inclusivity and trust in institutions. Without this foundation, resistance to change could undermine progress.

Beyond its domestic goals, 2025 will be pivotal for India’s leadership in advancing the global South’s priorities and shaping Brics’ economic agenda. Addressing regional inequalities, managing inflation and unemployment, and laying the groundwork for sustainable growth will demonstrate India’s capacity to deliver on its promise of inclusive development.

India thus stands at a critical moment in its modern economic history. Its choices in 2025 will determine its trajectory toward 2047 and its influence on the global economic landscape. India’s rise as a global power is not preordained – it is a deliberate outcome of action, adaptability and durable implementation. As Indian philosopher and reformer, Swami Vivekananda, urged, ‘Arise, awake, and stop not until the goal is reached.’

Source：omfif

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FastBull Featured

Daily News

Economic

[Quick Facts]

1. Russia's seaborne crude oil exports drop significantly as U.S. Sanctions take effect.

2. U.S. Senate Finance Committee approves Scott Bessent as Treasury Secretary nominee.

3. Comprehensive tariffs could hit Canada's economy by 3%.

4. Tariff concerns overshadow inflation worries, giving the Bank of Canada a reason to cut rates next week.

5. Canada's inflation slows to 1.8% due to Trudeau's temporary sales tax relief.

6. Trump policies spark market volatility, driving dollar and futures higher.

[News Details]

Russia's seaborne crude oil exports drop significantly as U.S. Sanctions take effect

Early indications suggest that U.S. sanctions targeting Russian oil trade are taking effect. Last week, Russia's seaborne crude oil exports fell to their largest weekly decline since November. According to compiled vessel-tracking data, exports have dropped, with the less volatile four-week average falling below 3 million barrels per day for the fourth consecutive week, nearing a 16-month low.

During the week ending January 19, 26 tankers loaded 19.26 million barrels of Russian crude oil, down from 27 tankers carrying 21.06 million barrels the previous week. Daily crude oil flows decreased by about 260,000 barrels to 2.75 million barrels per day, marking a 9% decline.

U.S. Senate Finance Committee approves Scott Bessent as Treasury Secretary nominee

On January 21, the U.S. Senate Finance Committee approved Scott Bessent's nomination for Treasury Secretary with a 16-11 vote, forwarding the nomination for a final Senate vote. If confirmed, Bessent will become a key spokesperson for economic policy in the Trump administration, significantly influencing fiscal policy, financial regulation, international sanctions, and overseas investments.

Comprehensive tariffs could hit Canada's economy by 3%

A report by the Canadian Imperial Bank of Commerce (CIBC) warns that even with exemptions for oil and gas, comprehensive U.S. tariffs could cost the Canadian economy up to 3.25%. The report evaluates four potential scenarios for U.S. tariffs on Canadian imports, ranging from 10% to 20%, with potential exemptions for key industries.

President Trump stated on Monday evening that he is considering imposing 25% tariffs on Canadian and Mexican imports starting February 1. Canadian Prime Minister Justin Trudeau vowed to respond, stating "everything is on the table." The report notes that excluding a 20% tariff on commodities—which account for nearly half of Canadian exports to the U.S.—would still lead to a 3.25% GDP decline. Even under a more conservative scenario of 10% tariffs, excluding commodities and the auto sector, the economic impact would still reach approximately 1.35%.

The report indicates that the Trump administration may be reluctant to impose tariffs on industries heavily reliant on close integration with their Canadian counterparts, as doing so "would result in significant job losses in the U.S., contradict Trump's affordable energy plan, and substantially increase inflation."

Tariff concerns overshadow inflation worries, giving the Bank of Canada a reason to cut rates next week

Doug Porter, Chief Economist at BMO Capital Markets, noted that President Trump's threat to impose 25% tariffs on all Canadian imports starting February 1 outweighs any concerns policymakers might have about accelerating core inflation. Porter cited the temporary sales tax holiday introduced last month, which "clearly slowed overall inflation." Although the Bank of Canada's preferred three-month annualized core inflation measure exceeded 3%, the upper range of the Bank's target, Porter emphasized that the heavy shadow of trade uncertainty "overshadows almost everything else." He anticipates the Bank of Canada will cut rates next week as a risk management measure.

Canada's inflation slows to 1.8% due to Trudeau's temporary sales tax relief

Canada's inflation rate decelerated for the second consecutive month, with the Consumer Price Index (CPI) rising 1.8% year-over-year in December, down from 1.9% previously. The slowdown is attributed to Prime Minister Trudeau's temporary federal sales tax exemption on certain goods from December 14 to February 15, leading to lower prices for restaurant food and alcoholic beverages.

Excluding the tax-exempt items, which account for about 10% of the CPI basket, the overall CPI growth would accelerate to 2.3%, remaining within the Bank of Canada's 1%-3% target range.

Trump policies spark market volatility, driving dollar and futures higher

On Tuesday, the U.S. dollar rebounded by 0.64% to 108.69, recovering partially from Monday's record 1.2% drop. Following Trump's return to office and his proposal to impose 25% tariffs on Mexican and Canadian imports, the Mexican peso fell by 1.3%, and the Canadian dollar hit a five-year low.

The euro declined by 0.62%, and the British pound dropped by 0.67%. U.S. futures markets rallied, with Nasdaq futures rising 0.56% and S&P 500 futures up 0.49%. European markets posted modest gains, with the STOXX 600 up 0.16%, though Germany's DAX fell 0.1%. U.S. Treasury yields fell by four basis points to 4.57%. Trump emphasized that tariffs and energy exports would reduce the U.S.-EU trade deficit.

[Today's Focus]

UTC+8 17:15 ECB Governing Council Member Villeroy Speaks

UTC+8 18:30 ECB Governing Council Member Knot Speaks

UTC+8 23:05 ECB President Lagarde Speaks

To stay updated on all economic events of today, please check out our Economic calendar

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ACY

Forex

Historical Context: Trump's First Term (2017-2021)

During his initial presidency, Trump implemented significant economic measures that influenced the USD and monetary policy:

Tax Cuts and Jobs Act of 2017

: This legislation reduced the corporate tax rate from 35% to 21%, aiming to stimulate domestic investment and economic growth. While it provided short-term economic boosts, it also contributed to increasing the federal deficit.

Trade Policies and Tariffs

: Trump adopted a protectionist stance, imposing tariffs on imports from countries like China, Canada, and Mexico. These actions led to trade tensions and retaliatory measures, affecting global supply chains and introducing volatility in currency markets.

Pressure on the Federal Reserve

: Throughout his term, Trump frequently criticized the Federal Reserve for its interest rate policies, advocating for lower rates to spur economic growth. This unprecedented pressure raised concerns about the Fed's independence.

Current Economic Policies and Potential Implications

In his current term, President Trump has signalled intentions to revisit and intensify several of his earlier economic strategies:

Imposition of New Tariffs

: Trump has announced plans to implement a 25% tariff on imports from Canada and Mexico by February 1, 2025, and has proposed additional tariffs on goods from other nations. He asserts that these measures will bolster domestic manufacturing and generate substantial revenue for the U.S. Treasury through the newly proposed External Revenue Service. However, economists caution that such tariffs could lead to increased consumer prices and heightened inflationary pressures.

Energy Policies and Deregulation

: Shortly after his inauguration, Trump signed executive orders aimed at expanding domestic energy production, including lifting restrictions on oil drilling in regions like Alaska and the Arctic Ocean. He argues that these steps will combat inflation and reduce living costs. Additionally, Trump has reversed policies promoting electric vehicle production and has withdrawn the U.S. from the Paris Climate Agreement, emphasizing a focus on traditional energy sources.

Tax Policies

: The administration plans to extend the tax cuts from Trump's first term, which are set to expire at the end of 2025, and introduce new tax reductions. While aimed at stimulating economic growth, these measures could exacerbate the federal deficit, potentially leading to long-term fiscal challenges.

Then and Now

While there are parallels between Trump's current policies and those from his first term, the economic context has evolved:

Inflation Concerns

: Unlike the low-inflation environment of his earlier presidency, the U.S. now faces higher inflation rates. Implementing substantial tariffs could further elevate consumer prices, complicating the Federal Reserve's efforts to manage inflation.

Will It Be Different Now? Trump Back on Power and Sticker Tariffs on Mexico and Canada_1

Global Economic Dynamics

: The international response to U.S. trade policies may differ in the current geopolitical climate. For instance, China's potential countermeasures, such as devaluing its currency, could influence global trade dynamics and affect the USD's strength.

Will It Be Different Now? Trump Back on Power and Sticker Tariffs on Mexico and Canada_2

USDCNH H1

Federal Reserve Relations: Given past tensions between Trump and the Federal Reserve, there is concern about potential challenges to the Fed's independence, especially if the administration seeks to influence monetary policy to align with its economic objectives.

Based on that I’m looking to short the Mexico pesos as the tariffs would be felt straight way on Mexico, not only Mexico but as well Canada, the biggest partners of USA, so I will be looking to trade long on USDCAD until 1.46 as well long on USDMXN, you can follow the USDMXN trade on this link where I’ve posted the whole idea with SL and entry point!

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