Canada: February headline CPI inflation expected to remain unchanged at 2.1% y/y - TDS

Research Team at TDS explains that after registering a substantial positive surprise in January and jumping slightly above the mid-point of the Bank of Canada's inflation target, February headline CPI inflation is expected to remain unchanged at 2.1% y/y, reflecting a moderate price increase of 0.2% m/m.

Key Quotes

“While energy prices are expected to fall in February, they are forecasted to register another double-digit y/y increase. We also anticipate higher shelter prices due to tightness in the Canadian housing market. Meanwhile food prices are expected to remain weak on a y/y basis, mostly because of a strong base effect and intense competition at grocery stores. Because the recent strength in headline CPI was largely driven by special factors (a jump in energy prices and the carbon levy in Alberta), we expect the core metrics of inflation (CPI common, trimmed mean and median) to edge slightly higher to average 1.7% from 1.6% in January as the amount of slack in the economy gradually shrinks.”

“Foreign Exchange

While we are in line with consensus on the all-items CPI, once again, market focus will be on the underlying inflation metrics. As noted above, we expect all three measures to nudge higher on average. We think this will provide a bid into the CAD, but with the House vote still ahead of us, levels at this point remain unclear. We will closely watch CPI-common however, as the BoC tends to place greater emphasis on this measure. Should this measure not confirm the average move higher, than we would be inclined to see the CAD reaction more measured or potentially weaken if CPI-common fell given the BoC has sounded more cautious on the inflation front.”