Canada CPI Preview: Forecasts from five major banks, decelerating trend

A retreat in gasoline prices could have translated into a 0.1% decline in the CPI in September (before seasonal adjustment). If we’re right, the 12-month rate of inflation should come down from 4.0% to 3.8%. Similarly to the headline print, the core measures preferred by the Bank of Canada should have eased in the month, with CPI-med likely moving from 4.1% to 3.9% and CPI-trim from 3.9% to 3.8%.

Canadian headline CPI growth is expected to edge down to 3.8% YoY in September from August’s 4% print. We look for price growth excluding food and energy prices to slow to 3.3% YoY – just above the top end of the central bank’s (1 to 3%) target range despite mortgage interest costs continuing to surge higher. But the closely-watched 3-month rolling average of the BoC’s preferred ‘trim’ and ‘median’ price growth measures both accelerated to a 4 ½% annualized rate in August, adding to concerns that underlying price growth is not slowing despite a softening macroeconomic backdrop. We continue to expect price growth to slow going forward, and that would be consistent with YoY price growth ticking lower in each of the ‘trim’, ‘median’, and trim services ex-shelter (sometimes called ‘supercore’) measures in September.

We expect headline CPI in September to rise 0.1% MoM, which would send the YoY reading to 4.1%. This would be a seemingly modest increase, but much stronger than the usual 0.3-0.4% MoM seasonal declines in September in pre-pandemic years. Part of the strength will be in the mortgage cost component, which could see the strongest increase since the BoC began raising rates. While officials will look past this strength when determining policy, there should be some strength in other elements of CPI, such as education services and car prices. Other components could be on the softer side, with another decline in recreation services and a pullback in gas prices this month.

Excluding food and energy, price pressures could look a little tamer this month as demand for services such as travel, hotels and restaurants exerts some downward pressure. However, the ongoing rise in mortgage interest costs will continue to apply upward pressure. Adding it all up, we see a 0.1% monthly advance in overall CPI in September (0.5% seasonally adjusted), which will see the annual rate tick up slightly to 4.1%.

We look for headline CPI to hold at 4.0% YoY in September with prices unchanged from the prior month as seasonal headwinds to groceries and travel-related components exert a mild headwind.