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CPI Canada Forecast: Forecasts from five large banks, new rise in inflation

Statistics Canada will release August Consumer Price Index (CPI) data on Tuesday, September 19 at 12:30, and as we get closer to release time, here are the forecasts from economists and researchers at five major banks on upcoming Canadian inflation data.

Headline inflation is expected to be 3.8% year-on-year, up from 3.3% in July. If so, headline inflation would accelerate for the second consecutive month to the highest level since April and would be further above the 2% target. In monthly terms, the CPI would be 0.2%, compared to the 0.6% previously published.

RBC Economics

The rise in Energy prices will drive price growth. We expect a year-on-year rate of 3.7% in August, compared to 3.3% in July. The BOC’s preferred core measures could rise year-on-year due to soft “base effects” from a year ago (the month-on-month increase in those measures a year ago was relatively small). But it will focus more on the recent three-month average growth rate of the “median”, “quarterly”, and quarterly unsheltered services (sometimes called “supercore”) measures. All of them remain “stuck” at rates above the upper limit of the BdC’s inflation target. However, we continue to expect that signs of a slowdown in the economy will translate into lower price growth in the remainder of the year, which would prevent further increases in BoC interest rates.


Rising gasoline prices could have translated into a 0.2% CPI increase in August (before seasonal adjustment). If we are right, the 12-month inflation rate should go from 3.3% to a 4-month high of 3.8%. Like headline inflation, the Bank of Canada’s preferred core measures should rise for the month, with average CPI likely to move from 3.7% to 3.8% and adjusted CPI from 3.6% to 3.7%.


We expect a solid headline CPI rise of 0.4% month-on-month in August, with base effects meaning the year-on-year reading rises to 4.1%. Part of the strength in August will be due to further increases in energy prices. A rebound in mortgage costs with higher interest rates should help support house prices. However, the most important upside risks to the CPI in August are likely to come from various services prices. The most important elements of the August inflation data will be the measures of core inflation. The three-month core inflation rate has remained stable in a range of 3.5-4% for a year, implying that annual measures will also remain around this range in August. Higher three-month inflation would, logically, increase the probability of further BoC rate hikes, possibly as early as October.


The rise in oil prices, which made consumers pay more at the pumps in August, will be the cause of a probable increase in the total CPI of 0.2% month-on-month. This would push the annual inflation rate to 3.8%, magnified by a weak reading from the previous year that is left out of the calculation. Rising gas prices will have left less money to spend on other items, and lower demand could have prevailed in categories other than food and energy, leaving food and energy prices at 12-month ex. at 3.4%, and validating the Bank of Canada’s position in September.


We expect headline CPI to rise 0.2% mom in August as inflation jumps 0.5% to 3.8% on a combination of base effects and higher energy prices. Gasoline and other energy products will contribute about 0.2% in the month or 0.1% in year-on-year terms, with an improvement in the case of the latter compared to the drag of 0.6% in July. Leaving aside the impact of rising energy prices, we expect the August report to show modest progress towards 2%. Seasonal headwinds should limit food prices to a minor increase, and we also expect another subdued performance of staples as households reduce discretionary spending. However, these improvements are unlikely to translate into lower pressures on core inflation, as the intermediate/middle CPI is expected to increase by 0.05% to 3.7% year-on-year (+0.1% for the intermediate CPI). In this way, three-month core inflation rates would remain in their recent range (3.5-4.0%), although according to our forecasts, inflation without food and energy would decrease 0.1%, to 3.3% year-on-year.

Source: Fx Street

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