CPI Canada Preview: Forecasts from six major banks, inflation will continue to slow

Statistics Canada will release October Consumer Price Index (CPI) data on Tuesday, November 21 at 1:30 p.m., and as we get closer to release time, here are the forecasts from economists and researchers at six major banks on upcoming Canadian inflation data.

Headline inflation is expected to be 3.2% year-on-year, compared to 3.8% in September. If so, it would be the lowest since June. The underlying cut is expected to fall one point to 3.6% year-on-year, while the underlying median would fall two points to 3.6% year-on-year.

TDS

We expect the CPI to fall 0.7%, to 3.1% year-on-year, due to a sharp variation in the contribution of energy products, as prices will remain unchanged month-on-month. Gasoline prices will be a strong drag for the month, but the tepid rebound in staples and continued strength in housing should help offset that. We should also see further progress on core measures, with CPI averaged down to 3.6% year-on-year.

RBC Economics

Year-on-year CPI growth is expected to slow significantly to 3.1% in October (just above the upper limit of the BOC’s inflation target range of 1% to 3%) from 3.8% in September. Falling gasoline prices pushed down energy costs, and the lagged effect of easing supply chains and falling food commodity prices continue to hold back price growth in supermarkets. There is not much the BOC can do to influence global commodity prices, with price growth excluding food and energy products expected to be “firmer”, rising to 3.3% year-on-year from the 3.2% from September.

NBF

Falling gasoline prices may have limited the overall index’s rise to 0.2% during the month before seasonal adjustment. If we are right, the 12-month inflation rate should drop from 3.7% to 3.2%. Like the overall index, the Bank of Canada’s preferred core measures should have declined, with the median CPI likely to fall from 3.8% to 3.6% and the adjusted CPI from 3.7% to 3.6%.

CIBC

The drop in gasoline prices, both month-on-month and year-on-year, will be the main driver of the fall in consumer prices in October. The 0.1% decline in unadjusted prices in October (-0.2% seasonally adjusted) would slow the annual inflation rate to 3.0%, which would be the lowest reading since June. Food price inflation should also continue to moderate, although prices are expected to continue rising slightly this month. On the contrary, ex-food/energy prices could be somewhat firmer than the previous month, with a seasonally adjusted increase of 0.3% expected. That said, this increase is expected to be more limited than the inflation seen in the first half of the year, with mortgage interest costs and rental prices primarily responsible. The Bank of Canada’s preferred cut and median inflation measures are expected to continue to slow both on a year-over-year and three-month annualized basis.

Citi

Canada’s headline CPI should continue to decline in October, remaining stable for the month and falling to 3.1% year-on-year. The weakening of Energy prices should be one of the main factors behind the decline in the CPI in October. However, many components of housing inflation should remain strong, including another solid increase in rents. But a further decline in new home prices in September and weakness in existing home prices in October suggest that the housing components most closely related to home prices could be somewhat weaker this month. The most important element of any CPI report, as it has been for many months, will be the trajectory of core inflation, with anecdotal data suggesting that the moderation in annual core inflation should become more evident at some point in the first half of the next year. The more conservative decline in the CFIB could suggest that the quarterly pace of core inflation falls below 3.5% at some point in the coming months.

Wells Fargo

A favorable October CPI result would support the continuation of the interest rate pause and a likely rate peak. The combination of lower energy prices in October and favorable base effects should lead to a sharp slowdown in headline inflation to 3.2% year-on-year in October, down from 3.8% in September. Equally important, central bankers and market participants expect the pace of core inflation to slow as well. The central bank’s average core inflation gauges fell to a three-month annualized pace of 3.67% in September. If this indicator is between 3.0% and 3.5% in October, we believe that it would reinforce the idea that the maximum level of the official interest rate has already been reached. In our opinion, a moderate slowdown in inflation in this sense would also keep the Bank of England on track to begin lowering its official interest rates from the middle of next year.