Canada CPI: Headline inflation to firm to 1.5% in August - TDS

Analysts at TDS expect Canada’s headline inflation to firm to 1.5% in August from 1.2%, reflecting a 0.2% m/m increase in consumer prices.

Key Quotes

“Gasoline prices should serve as a key source of inflationary pressure, which should continue into September but fade sharply thereafter. Shelter prices should also remain a tailwind as new home prices have yet to adjust to the slowdown in the housing market.”  

“However, we view risks skewed to the downside for this report in light of the rapid pace of CAD appreciation since June. Food prices in particular are a source of downside due to the combination of falling agricultural prices and FX passthrough. For the BoC, all eyes are on the core inflation measures, which provide an alternative indicator of the output gap. Core inflation has firmed to 1.5% on average, and further progress will strengthen the Bank’s confidence that the output gap is in fact closing this year. Rapid currency appreciation may challenge this path forward in the nearterm, but falling labour market slack and rising wages underpin an upward trajectory into next year.”