Canadian CPI Preview: Forecasts from five major banks, on a thread to stay below 5%

Statistics Canada will release December Consumer Price Index (CPI) data on Wednesday, January 19 at 13:30 and as we get closer to the release time, here are the forecasts by the economists and researchers of five major banks regarding the upcoming Canadian inflation data. Annual CPI in Canada is expected to edge higher to 4.8% in December from 4.7% in November. A stronger-than-expected inflation reading could provide an additional boost to the CAD in the second half of the day and vice versa. 

TDS

“We look for inflation to hold at 4.7% in December as prices see their monthly first decline for 2021. Energy and clothing are expected to drive the pullback, while food and shelter provide a source of strength. Prices should see modest gains on a SA basis for a deceleration from the recent trend, while core inflation is expected to hold stable at 2.7%.”

ING

“In Canada, the CPI report is the key release and with headline inflation set to break above 5%, we could see growing expectations of a January Bank of Canada interest rate hike. We are more cautious on the timing at this stage given some uncertainty over the Omicron hit to economic activity, but higher interest rates are certainly coming.”

NBF

“While we expect strong prints for CPI ex-food and energy in the next few months given labour shortages and supply chain issues, the headline index could have been negatively impacted by a drop in gasoline prices in the final month of the year. This should have been partially compensated by the food segment, which continued to be impacted by rising commodity prices. We expect prices to have dropped 0.3% MoM before adjustments for seasonality. This would translate into a one tick decline of the annual rate, to 4.6%. The common core index, meanwhile, could have increased 2.1% on a 12-month basis.”

CIBC

“A flat reading for the CPI index in non-seasonally adjusted terms would translate into a seasonally adjusted gain of 0.3%. That’s weaker than the recent trend, but still a little stronger than what would be consistent with a 2% inflation target. While energy prices were lower, monthly house price gains appear to have accelerated again and food prices are also likely to have been a source of inflationary pressure. The 4.9% YoY pace forecasted would be the highest since the early 1990’s.” 

Citibank

“CPI NSA MoM (Dec) – Citi: -0.1%, median: -0.1%, prior: 0.2%; CPI YoY – Citi: 4.8%, median: 4.8%, prior: 4.7% – the key part of the December inflation report will be core inflation measures. In December Governor Macklem acknowledged CPI-common at 2% as a sign that remaining slack has been substantially absorbed.”