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Canadian dollar pops on hot inflation, Greece relief rally Add to ...

These are stories Report on Business is following Wednesday, June 29. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.

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Loonie pops The Canadian dollar climbed more than a penny today after the latest inflation reading put some heat on the Bank of Canada. Also buoying the currency was a general relief rally as Greece's government won a crucial vote on new austerity measures.

The higher-than-expected showing on inflation got markets thinking that Bank of Canada Governor Mark Carney may raise interest rates again sooner rather than later, said Scotia Capital currency strategist Camilla Sutton.

Economists had been thinking Canadians may not get another rate hike until next year, but they're re-thinking things today given the central bank's mandate for an inflation rate of 2 per cent. It's now 3.7 per cent, an eight-year high.

"The data suggest that while a soft patch of economic growth is likely to keep the Bank of Canada on the sidelines for now, the pick-up in underling price momentum is a trend the inflation-targetting central bank can't ignore - one factor suggesting rate hikes before year-end," said economist Emanuella Enenajor of CIBC World Markets.

Inflation rate rises Inflation is, indeed, getting awfully hot in Canada, though it's largely driven by high prices at the pump.

The annual inflation rate climbed in May to 3.7 per cent, uncomfortably above the Bank of Canada's target, Globe and Mail economics reporter Jeremy Torobin writes.

The so-called core rate, which excludes volatile items and guides the central bank's monetary policy, came it at 1.8 per cent, Statistics Canada said today. The overall rate was up from 3.3 per cent in April. Month over month, prices climbed 0.7 per cent, though on a seasonally adjusted they rose 0.2 per cent.

Energy prices spiked 16.6 per cent from a year earlier, the federal agency said. Strip out gas, and prices rose 2.4 per cent over the 12 months.

But Mr. Carney still has wiggle room.

The inflation rate is expected to fall again, and economists believe price pressures will ease. And remember, gasoline prices are a big factor here.

"Canada's headline rate of inflation has likely hit its high-water mark and should soon begin to head lower," said deputy chief economist Derek Burleton of Toronto Dominion Bank. "... All said, look for headline CPI inflation to fall back to below 3 per cent during the second half of 2011 and for core price inflation to stay below the Bank of Canada's inflation target of 2 per cent."

Markets climb, but don't be fooled Investors are in an optimistic mood this morning as Greece's Parliament voted to pass a new round of austerity measures that include severe cuts to the public sector, tax hikes and asset sales.

Markets are higher, but, noted Scotia Capital, today's vote is the first of several hurdles, and investors should not be fooled by a possible "sucker's rally."

Protests continued in Greece against the austerity measures as Prime Minister George Papandreou won approval for the measures tied to the country's bailout. No approval, no more money, Globe and Mail European correspondent Eric Reguly reports.

"Quite what this actually means, however, when there are clear signs that the population won't buy into the measures required remains to be seen, making this rally look awfully fragile and potentially just increasing the size of any resulting selloff that we will presumably witness at some point," said Yusuf Heusen, senior sales trader at IG Index.

A long road for Greece Europe's debt crisis has raged for more than a year now, and it would be unwise to believe that it's going to end any time soon. Today's approval in Parliament for more tough measures only staves off a near-term credit default.

"One only has to look at the scenes outside the Parliament building in Athens to know that there is a long way to go with some opinion polls saying that over 70 per cent of Greeks are opposed to the measures," CMC Markets analyst Michael Hewson said in a research note.

Markets are worried about the possibility of a credit default, though fears began to ease when France said its banks would agree to roll over some debt, sparking hope that other European institutions will agree to the same plan. The vote today will add to the optimism, though many hurdles remain.

"There is also the small matter of the ratings agencies who have gone on the record as saying that any type of reorganizing, restructuring of debt would technically be considered a default event," said Mr. Hewson.

"There is also a school of thought that politicians could well exert undue pressure on the agencies, which would be ironic given that the same agencies were being roundly criticized by governments two to three years ago for not being stringent enough with respect to their ratings of subprime debt. It is unlikely that they will want to be accused of being caught out again, but who knows what political pressure might be brought to bear."

As politicians debated, protests continued in the streets. Today's vote was the first, and will be followed tomorrow with another that would put the legislation into effect. Then, on Sunday, finance ministers of the euro zone meet to decide whether to release the next tranche of money.

"Then the fun begins," said Derek Holt and Karen Cordes Woods of Scotia Capital.

"What happens from that point forward is still marked by enormous uncertainty. How to address Greece's longer run funding requirements within the confines of an economy that stands no hope of doing it on its own through economic and revenue growth, and how to do so without triggering a default stamp is proving to be enormously complex."

Today's developments pave the way for the next €12-billion from the EU, European Central Bank and International Monetary Fund. After tomorrow's second vote, the EU finance ministers will discuss all the issues on Sunday, including proposed voluntary rollovers by private debt holders.

"While in theory, the European/IMF package could take care of all of the financing needs through Q2 2014 (ensuring the IMF will be in the game through Q2 2013), in practice, we expect that economic weakness in Greece will test the country's political resolve to stay with austerity that long," said Avery Shenfield, chief economist at CIBC World Markets.

"We could be back at the table a year from now if it becomes apparent that Greece is once again falling short of its fiscal targets, or if the government is unable to stay the course in the face of public opposition and recession."

House prices rise House prices in Canada have hit a fresh high, according to the latest reading of the Teranet-National Bank house price index.

Prices rose 1.1 per cent in April from March, marking the strongest in a string of gains over five months, which in turn came after three consecutive gains, National Bank's Marc Pinsonneault said today. But the trend may not last given that many rushed to buy before mortgage rules changes. Year over year, prices rose 4.4 per cent.

"We see the market in a consolidation process," he said. "This will allow household income and rents to gradually realign on their long term relationship with house prices, a welcomed development at a time where there is no more significant upside in the homeownership rate."

Prices rose in all six cities covered by the index. Year over year, though, they fell in Calgary.

Shaw profit climbs Shaw Communications Inc. , which has been in a slump lately that has included layoffs, has bounced back with third-quarter financial results that beat analysts' expectations and included a 28-per-cent boost in profits.

The Calgary-based cable company reported a profit of $202-million or 45 cents per share, up from $158-million and 37 cents per share a year earlier, handily beating Bay Street's expectations of about 42 cents per share, Globe and Mail telecom writer Iain Marlow reports.

Revenue was also up, roughly 36 per cent, blowing past the $1-billion mark to $1.2-billion from $943-million during the same quarter last year.

It's all in the juxtaposition Here's what the president of Niko Resources Ltd. said in his report to shareholders today: "Niko has a strong production base and an extensive portfolio of exploration prospects. Two thousand and twelve could prove to be Niko's most exciting year ever."

Fascinating juxtaposition. Here's what the company also said in its earnings report: "In January 2009, the company announced that the Canadian authorities were engaged in a formal investigation into allegations of improper payments in Bangladesh. The company co-operated in the investigation, which was concluded on June 24, 2011. The company pleaded guilty to one count of bribery under the Corruption of Foreign Public Officials Act, was fined Cdn$9.5-million and is subject to a three-year probation order. In early 2009, the company adopted a full anti-corruption compliance program."

Niko's fourth-quarter profit plunged to $649,000 or a penny a share from $38.7-million or 77 cents a year earlier.

The Calgary-based energy company pleaded guilty last week to bribing a Bangladeshi minister with a luxury SUV and a trip to New York and Calgary.

In Economy Lab today Asset bubbles are almost impossible to identify in real time. Price increases aren't always due to irrational behaviour. And when interest rates are very low, those increases can be very sharp indeed, Stephen Gordon writes.

In International Business today Will OPEC retaliate against the western countries' release of strategic oil stocks by tightening its own supply to drive prices higher again? That question has haunted the oil market for the past week. Javier Blas of The Financial Times examines the issue.

In Personal Finance today Crowdfunding lets anyone with a few bucks fund a cause or business. It also raises questions about donating to a sponsor you've never met.

Be wary of choosing a friend or relative as your financial adviser. Ask yourself: what if you have to fire them?

If you're moving, downsizing or just de-cluttering, a garage sale is a great way to make some extra money.

From today's Report on Business

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