Canadian CPI Preview: Forecasts from six major banks, inflation steering into calmer waters

Statistics Canada will release December Consumer Price Index (CPI) data on Tuesday, January 17 at 13:30 and as we get closer to the release time, here are the forecasts by the economists and researchers of six major banks regarding the upcoming Canadian inflation data.

Headline is expected at 6.3% year-on-year vs. 6.8% in November. If so, it would continue the deceleration from the 8.1% peak in June to the lowest since February 2021. 

TDS

“We look for headline CPI to slow to 6.4% YoY in December as a sharp drop in energy prices drives a 0.5% MoM decline. Clothing will also weigh on the headline print, while food prices, rents, and mortgage interest provide a source of strength. Core inflation measures will also remain in the spotlight with CPI-trim/median projected to edge lower to 5.1% from record highs.”

RBC Economics

“We expect headline CPI growth slowed to 6.4% in December from 6.8% in November.”

NBF

“Plunging gasoline prices, combined with expected weakness in the goods sector, should have weighed on the headline figure, offsetting sustained price pressure in the services segment and translating into a 0.7% monthly decline for the headline index. If we’re right, the 12-month rate should drop six ticks to 6.2%. We expect the moderation in core measures to have continued on MoM basis, something which should translate into a decline in the 12-month-rate for both the CPI-Trim (from 5.3% to 5.2%) and the CPI-Median (from 5.0% to 4.8%).”

Citibank

“We expect a 0.6% MoM decline in (non-seasonally adjusted) headline CPI in December, which would take the YoY reading to 6.3% after having stabilized close to 7% since August. Falling retail gas prices will weigh substantially on CPI in December with usual seasonal weakness in components like apparel prices and recreation. Core measures have stabilizing around 5% annualized in recent months and while we see some moderate downside risks in December (falling around 0.1 0.2pp), this still elevated level of core inflation is unlikely to change the outcome of a 25 bps hike by the BoC.”

CIBC

“Canadians finally caught a break from ever rising prices in December, albeit mainly at the pumps. A sharp decline in gasoline prices will be the main factor behind an expected 0.6% MoM drop in headline CPI, and a deceleration in the annual rate to 6.3%, from 6.8% in the prior month. Used car prices could also have seen a slight dip. However, there are unfortunately a number of areas in which prices are likely to have risen even further, including food and potentially air fares as demand recovered closer to pre-pandemic norms over the holiday season.”

Wells Fargo

“We expect headline CPI fell to 6.5% YoY in December from 6.8% in November, given some softening in energy prices. Seeing as though inflation is on a downward path, we believe a peak will soon be in sight for BoC policy interest rates, although not quite yet, as inflation is still well above the central bank's inflation target. In our view, the BoC will be paying close attention to the path of underlying inflation pressures to determine its monetary tightening path. We have seen some encouraging signs that underlying inflation could soon begin to ease, as shorter supplier delivery times show improvement in supply chains, while lower commodity prices should see CPI trend lower too. We expect the BpC to raise its policy rate 25 bps at its January meeting to a terminal rate of 4.50%. As long as core inflation begins receding noticeably in the months ahead, we anticipate the BoC's January rate hike to be the last of the current cycle.”