Canadian CPI Preview: Forecasts from seven major banks, signs of easing price pressures?

Statistics Canada will release September Consumer Price Index (CPI) data on Wednesday, October 19 at 12:30 and as we get closer to the release time, here are the forecasts by the economists and researchers of seven major banks regarding the upcoming Canadian inflation data.

Headline is seen falling two ticks to 6.8% year-on-year, while Core, which excludes volatile food and energy prices, is expected to fall one tick to 5.6% YoY. On a monthly basis, Canadian CPI is seen flat.

RBC Economics

“The backward-looking September CPI numbers should confirm that current price pressures are still too high and broadly based to take the BoC off its rate hiking path. Headline inflation readings have been declining since early summer as gasoline and oil prices retrench. We expect the rate to tick lower again, to 7% in September. But measures of ‘core’ inflation (measures designed to provide a better gauge of underlying inflation pressures) were likely stickier. We expect YoY price growth excluding food and energy products increased in September and the Bank of Canada’s preferred ‘median’ and ‘trim’ core CPI measures are not expected to repeat the small dip in August. That contrast between ‘headline’ and ‘core’ inflation measures will persist in the near-term. Indeed, core inflation isn’t likely to meaningfully slow until December. Upside surprises, either from little improvements in inflation expectations or a worsening reading in the actual CPI, risk tilting that to a bigger 75 bps increase.”

TDS

“We look for inflation to edge 0.2% lower to 6.8% as a large drag from energy leaves prices unchanged from August. A rebound in rents and motor vehicles will offset the drag from energy, and core inflation should edge lower by ~0.1%. Even though a 6.8% inflation rate remains uncomfortably high for the Bank of Canada, our forecast would leave the Q3 average ~0.9pp below projections from the July MPR at 7.1%, and we should also see some modest improvement across core inflation measures.”

NBF

“While price increases could still have been sustained in the services sector, we expect goods inflation to have continued to weaken on lower prices for transportation and thanks to an easing of supply chain issues. Slumping gasoline prices might also have helped cooling price pressures. As a result, the headline index could have decreased by 0.2% MoM before adjustments for seasonality, allowing the YoY rate to drop from 7.0% to 6.6%. The annual rate of trim (from 5.2% to 5.0%) and median CPI (from 4.8% to 4.6%) might have declined as well.”

Citibank

“We expect a modest -0.1% MoM decline in September CPI, with the YoY measures moderating further to 6.6%. Most important will be the trend in core inflation measures after the first signs of a pullback in August. Continued moderation in core CPI measures would be consistent with leading survey indicators that suggest further easing into year-end. These will be key for BoC’s decision in October. We expect a further easing in inflation data to support a shift to a 50 bps pace of hikes by the BoC in October.”

CIBC

“Unadjusted prices are expected to drop by 0.2% MoM with the annual rate easing to 6.5%, from 7.0% in the prior month. Food prices, including another rise in dairy prices, will partly offset the decline in energy costs. The trend in ex-food/energy prices is once again likely to be more subdued in Canada than in the US, thanks largely to the differing treatment of shelter costs. With house prices continuing to fall and building costs no longer escalating, the homeowner replacement and other housing components of CPI will remain weak MoM. These components combined account for roughly 11% of the overall CPI basket. While mortgage interest costs will continue to escalate, this area is a smaller 3% of the basket and tends to be looked past by the Bank of Canada in its policy setting deliberations.”

BMO

“The sudden spill in the Canadian dollar complicates the Canadian inflation outlook – the loonie is now down more than 10% from a year ago, its sharpest yearly drop in almost seven years. This weakness will almost instantaneously translate into higher food and energy prices, and will also seep into a wide variety of other imported costs. Still, we expect CPI to ease to below 7% on lower gasoline prices, while we also look for some further retreat in core inflation.”

Wells Fargo

“The release of Canada's September CPI is expected to show a further deceleration of inflation, with the consensus forecast calling for headline inflation to slow to 6.6% YoY, from 7.0% in August. That would mark the third straight slowdown in inflation, a trend that has been driven in particular by falling gasoline prices, which could also decline further in September. It is not yet apparent whether broader price pressures are showing a significant slowdown, with food prices, in particular, continuing to quicken in August. In fact, the consensus forecast is for the trimmed mean CPI to remain steady at 5.2% YoY. While the slowing in headline inflation might be enough for the Bank of Canada to slow the pace of rate increases, we don't think it will be enough to dissuade the central bank from further tightening. As of now, we expect the BoC to raise its policy rate by 50 bps in late October, which would be less than the 75 bps increase it delivered in September.”