09.06.2001
Still no inflation - more interest rate cuts ahead

• Development: CPI rose 0.4% YoY in August for 0.3% YtD growth. Bad weather conditions pushed food prices up 0.4% YoY, while a 1.6% drop in clothing prices offset inflationary pressure. Goods’ prices fell 0.4% YoY amid sluggish domestic demand. Service prices rose 1.5% amid a 2.5% jump in education and a 3.9% rise in medical care prices.

• Analysis: Persistent unemployment and sluggish demand will continue to put a cap on inflation in 2001 and 2002. We forecast CPI growth will come in below 0.3% this year.

• Primasia View: In the absence of inflation, real interest rates need to come down further. The CBC is likely to announce another 25bps cut at its September board meeting.