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.
Bank of Canada governor Mark Carney will release the bank's next Monetary Policy Report Thursday.
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