Canada: Headline CPI to drop into deflationary territory for the first time since 2009 – TD Securities

On Wednesday, inflation data from Canada will be released. Analysts at TD Securities look for the Consumer Price Index to post another 0.6% m/m decline in April, which would push the headline into deflationary territory. They point out energy prices will provide the main driving force. 

Key Quotes: 

“We look for CPI to post another 0.6% m/m decline in April which would push headline CPI into deflationary territory, at -0.1% y/y, for the first time since 2009. Once again, energy prices will provide the main driving force for the month, with gasoline prices expected to post a similar drop to their 17% decline in March, while other energy products will also weigh on the headline. Food prices will provide a partial offset, helped by significant CAD deprecation, while several core components will be impacted by COVID-19.”

“Core CPI measures should soften by less, owing to the significant negative contribution coming from energy prices. We look for the BoC's core measures to edge lower by 0.2pp on average to 1.6% y/y, while the xFE index should soften to 1.4% y/y. While the return to a deflationary environment will not be welcomed by policymakers, we expect it should be fairly brief as easing lockdowns should allow a return to a more inflationary environment this summer.”