Wednesday, May 20, 2009

Canadian inflation hits 14-year low - agricultural commodities gaining even more appeal

Thomson Reuters published this morning a report on the latest inflation figures in Canada.

Canada's annual inflation rate in April dropped to a 14-year low of just 0.4 percent, a move analysts said meant the Bank of Canada would be in no rush to raise record-low interest rates.

The central bank last month cut its benchmark interest rate to 0.25 percent and promised to keep it there until mid-2010 as long as inflation remained tame.

The core annual inflation rate - closely watched by the Bank of Canada - dropped to 1.8 percent from 2.0 percent in March. The rate excludes the costs of volatile components such as fruit, vegetables, natural gas, fuel oil, and gasoline.

The fall in energy costs helped offset a rise in food prices, which have been steadily increasing since February 2008. Prices in April were 7.1 percent higher than a year earlier, slower than the 7.9 percent year-on-year increase in March.

The Canadian dollar firmed following the data and by 8:30 am was at C$1.1488, or 87.05 US cents, from around C$1.1553, or 86.56 US cents.
To oversimplify here, and joining the chorus of other bulls on the sector, I believe that agricultural commodities may be a safe place to deploy some money. The due diligence, as required before any investment, could start off with a close look at the two Canadians icons playing in the agricultural space, Agrium and Potash Corp of Saskatchewan.

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