Canadian headline CPI likely to firm to 1.9% in March - TDS

Analysts at TD Securities expect the Canadian headline CPI to firm to 1.9% y/y in March, reflecting the second consecutive 0.7% m/m advance.

• Gasoline prices should lend a substantial boost, with retail prices posting an 11% increase during the month, but one-off factors will also have a significant impact. We are focused on travel services, telephone/internet services, airfares, and rents which on balance point to the upside for March CPI.
• Our March forecast is consistent with Q1 CPI at 1.6% y/y vs the BoC’s estimate of 1.7%, although the rapid recovery in gasoline prices has put the CPI profile on a much higher trajectory, such that we now see CPI holding at or slightly above 2% for most of 2019.
• For core CPI, we expect the average of the BoC's preferred measures to remain stable at 1.83% y/y but see upside risk to CPI-trim and median on favourable base effects. CPI-trim and CPI-median rose by 0.02% and 0.08% on the month, respectively, in March 2018 and both series have averaged 0.2% m/m over the last three months. This provides a low hurdle for either to push higher, although we are not as upbeat on CPI-common due to a tighter correlation to the output gap which has recently widened.