Canadian Consumer Price Index (YoY) (DEC) (12:00 GMT; 07:00 EDT)
                       (Headline)             (Core)
Consensus:        1.7%                   2.3%
Previous:            1.4%                   2.2%

Outlook: Consumer inflation is expected to have picked up in the final month of the 2006 as holiday spending and a modest rebound in energy prices raised the national gauges. For the broad headline measurement, prices are expected to accelerate for a third consecutive month to 1.7 percent, while the number excluding volatile components like energy and food steps its pace up marginally to 2.3 percent. From the existing data available for interpretation, there are few reads offering clues to last months CPI. In November, a 0.5 percent rise in new home prices will compete with relative low in the Ivey PMI’s prices paid component. Looking to underlying trends for the period suggests there may be two major sources of fuel for a pick up in December inflation. The driver behind inflation through the end of 2005 and the beginning of 2006, energy prices have found a modest rebound through the first half of December, though this will be tempered by the steep decline that developed towards the end of the month. Perhaps the most influential in December and going forward, though, may be consumer demand. In conjunction with the holiday season, Canadian firms added 61,600 new employees to the payroll. This will likely offer a quick, short-term boost in confidence and spending, while the 31-year low jobless rate steadies the long-term picture. Going forward, overall inflation numbers will be torn between the uncertain path of domestic demand and the sharp contraction in energy prices seen in January. Should December’s numbers print in line, their proximity to the BoC’s 2.0 percent target rate should keep their outlook sufficiently neutral.

Previous: Inflation in the world’s eighth largest economy sped up in its November reading as food and housing-related costs offset scattered dips in other areas of the economy. Statistics Canada’s measurement of headline price growth accelerated to 1.4 percent for the period, marking the second monthly pull up since bottoming out at 0.7 percent in September. Deciphering the data reveals a 0.8 percent jump in food and 1.0 percent pick up in transportation costs paced the monthly numbers higher. However, the annual numbers provided a different picture. Food enjoyed the top spot with 3.1 percent inflation, but transportation was stuck in its third monthly contraction for the longer-term gauge. Instead, a 2.9 percent advance in housing related costs supported the rise, with the biggest jump in mortgage costs marked since March of 2001. What’s more, the energy group reported no monthly change, the first time in four months the volatile numbers have not contracted; while the annual figure tallied yet another decelerating decline to the tune of 2.8 percent. Considering the core numbers, the effects were the opposite. Excluding food and energy, the Bank of Canada’s figure slipped from its 2.3 percent high to 2.2 percent. With both of the annual gauges converging on the 2.0 percent target rate, the central bank found it easy to stay its hand with considerations towards inflation.

Canadian Retail Sales (NOV) (13:30 GMT; 08:30 EDT)
                         (Sales)                   (Ex Autos)
Consensus:          0.8%                      0.4%
Previous:             -0.7%                     -0.7%

Outlook: Analysts predict that retail sales improved for the first month in three, as sharp declines through September and October should lead to a small retrace in subsequent months. Regardless, such a bounce higher does not constitute a fundamental shift in expectations for Canadian consumer demand, with a dreary outlook for domestic manufacturing threatens to derail employment growth in key sectors of the economy. Domestic spending has been somewhat of a dichotomy for Canadians, as natural resource-rich regions have seen booming growth, while export-linked industrial regions have seen little in the way of expansion. As such, we look to tomorrow’s report with a special eye towards regional distributions of growing retail sales, with a positive surprise in Ontario and Quebec to potentially improve outlook for the broader economy.

Previous: Excluding Auto sales, Canadian retail sales posted the second consecutive substantive decline through October—worsening outlook for consumer demand in the world’s eighth-largest economy. Soft results in key expenditure figures underline the risks to the economy, with poor performance in key industries holding back broader Gross Domestic Product gains. Indeed, if we are to see Canadian Retail Sales improve through the coming months, we must see similar gains in the export-linked manufacturing industry—with a sharp appreciation in the Canadian dollar hurting demand for the country’s goods.

Japanese All Industry Activity Index (MoM) (NOV) (23:50 GMT; 18:50 EDT)
Consensus:         0.0%
Previous:             1.7%

Outlook: The Japanese all-industry activity index is anticipated to hold steady in November as the tertiary index – a gauge of money spent on services such as communications and retailing and composes 60.4 percent of the headline figure – declined a seasonally adjusted 0.3 percent. However, the slip in the tertiary index was likely a correction from October’s 2.1 percent surge, as the November reading was led by a 13.7 percent decline in fixed-line telephone fees after they surged 25.5 percent during the month prior. Meanwhile, retail services demand increased 1.3 percent – the fastest month-on-month gain since January 2006 – while demand for personal services, a mixed bag that includes laundry and beauty care, climbed 2.5 percent – the biggest increase in four months. While a decline in the headline all-industry activity index will be disappointing for Japanese expansion, the increase in retail sector data is encouraging for consumption growth, which has consistently served as the Achilles’ heel of the Japanese economy.

Previous: The October reading of the Japanese all-industry activity index surged to 1.7 percent – the highest since January 2005 – as demand for services rose at the fastest pace in six years. The tertiary index jumped a seasonally adjusted 2.1 percent after falling a revised 1.2 percent the month prior with the help of the industrial sector, as producers like Toyota, Japan's biggest company, increased domestic production at almost four times the pace as September in anticipation of higher overseas demand for its fuel-efficient vehicles. Meanwhile, sales of computer systems and other information services climbed 11 percent, helping to drive the all-industry index’s gains. Overall, the data indicated that manufacturing continued to be the primary driver of economic expansion in Japan, as consumer spending declined on tepid wage growth.

Australian Consumer Price Index (YoY) (4Q) (00:30 GMT; 19:30 EDT)
                      (Headline)             (Market Prices)
Consensus:         3.6%                       2.3%
Previous:             3.9%                       2.1%

Outlook: Australian inflation is expected to have cooled in the final months of 2006, though the real question is whether it will be enough to check the RBA’s hawkish turn. The market is set with economists’ consensus of a 0.2 percent increase for the quarter. Subsequently, if this figure is matched with the actual print, it would be the slowest pace of price growth in three years. Leading market diviners to this conclusion has been the heady mix of cheaper food and energy prices. In the beginning of 2006, prices for fruit soared after a cyclone destroyed 80 percent of the national banana crop while also affecting many other food stuffs. Since then, farmers have acted quickly to answer the high demand and prices by stepping up planting for the new crop and in turn equalizing prices. Elsewhere, the plunge in global energy prices in the final months of the year will be fully realized in the fourth quarter read. For consumers, the over-14 percent drop in gasoline prices since the high in June will push the gauges down. Despite these reserved expectations for the quarter, the annual figure is still on pace to influence overall policy decisions.  In the twelve months through the year, price growth is expected to decelerate to 3.6 percent, though this is still well beyond the RBA’s 2-3 percent target rate. Should the numbers come in as expected, policy makers will need to debate whether the annual figures demand attention or whether the quarterly rate is the beginning of a bigger trend.

Previous: Price pressures loomed large for the third quarter in Australia, suggesting the impetus for further tightening in overnight lending rates was necessary to rein the inflation in and stabilize the economy. Over the three months ending in September, the government’s read of CPI jumped 0.7 percent – greater than the market had initially suspected. More importantly, the annual figure held above the RBA’s tolerance band for the second consecutive period at 3.9 percent. For the period, the rise in prices was predominately based in only a few areas. Food prices for the period grew 2.3 percent, spurred on by a 20.5 percent surge in fruit prices. Elsewhere, record high crude prices at the beginning of the three months proved to be little effected by the cooling seen in the final weeks of the tracking period. Not to be forgotten, consumer demand was also playing its part in the inflation scheme. With wages and employment cruising along at a strong clip, furniture prices rose 1.3 percent while housing costs grew 1.2 percent to capitalize on the loose spending. In response to the strong inflation after they hit the wires, the RBA decided to raise the benchmark cash rate another 25 basis points to back up the previous hikes in May and August to “see off” persistent inflation.

John Kicklighter is a Currency Strategist at FXCM.