Statistics Canada will release October’s Consumer Price Index (CPI) data on Tuesday, November 21st at 1:30 p.m., and as release time approaches, here are the predictions of economists and researchers at the big six banks for the upcoming Canadian inflation data. .
The total amount is expected to be 3.2% year-on-year vs. 3.8% in September. If so, it would be the lowest since June. The core adjustment is expected to decline by a tick to 3.6% y/y, while the median is expected to decline by two ticks to 3.6% y/y.
We expect CPI to fall by 0.7 pp y-o-y to 3.1% due to a sharp swing in the contribution of energy products as prices were unchanged month-on-month. Gasoline prices will rise sharply during the month, but tepid gains in staples and continued strength in shelters should help offset that. We should also see more progress in leading indicators with CPI-trim/median lower at 3.6% y-o-y.
Year-on-year CPI growth is expected to slow significantly to 3.1% in October (just above the upper end of the BoC’s 1% to 3% inflation target) from 3.8% in September. Falling gasoline prices have pushed down energy costs, and the lagged impact of easing supply chains and lower food commodity prices continues to dampen grocery price growth. There is not much the BoC can do to influence global commodity prices, with price growth excluding food and energy expected to be “stickier”, rising to 3.3% year-on-year from 3.2% in September.
A drop in gasoline prices may have limited the overall index’s rise to 0.2% in the month before seasonally adjusting. If we’re right, the 12-month inflation rate should fall from 3.7% to 3.2%. Similar to the headline print, the Bank of Canada’s preferred core measures were expected to ease, with CPI-med likely moving from 3.8% to 3.6% and CPI-trim from 3.7% to 3.6%.
The main driver of lower consumer prices in October will be lower gasoline prices on a month-on-month and year-on-year basis. A 0.1% drop in crude prices in October (-0.2% seasonally adjusted) would cause the annual rate of inflation to slow to 3.0%, the lowest since June. Food price growth should also continue to moderate, although prices are still expected to rise slightly month-on-month. In contrast, non-food/energy prices could look slightly firmer than last month, with a 0.3% seasonally adjusted increase expected. However, this increase is still expected to be more narrowly based than the inflation we saw in the first half of the year, with mortgage interest costs and rental prices being the main contributors. The Bank of Canada’s preferred inflation rate and inflation median are expected to slow further on both a year-over-year and annual basis in 3 months.
Canada’s headline CPI is expected to slow further in October, remaining flat month-over-month and falling to 3.1% year-over-year. Weaker energy prices should be a big factor leading to a softer CPI in October. However, many components of the inflation shelter should remain on the strong side, including further solid rent increases. But further declines in new home prices in September and weaker existing home prices in October suggest that the shelter components, which are more closely related to home prices, could be somewhat softer this month. The most important element of any CPI report will be, as it has been for a number of months, the trajectory of core inflation, with anecdotal data suggesting that the easing of year-on-year core inflation should become more evident sometime in the first half of next year. A more conservative decline in the CFIB could indicate that the 3-month pace of core inflation will fall below 3.5% sometime in the coming months.
A favorable October CPI result would support the case for a continued hold on policy rates and a likely peak in policy rates. The combination of lower energy prices during October and favorable benchmarks should lead to a sharp slowdown in headline inflation to 3.2% in October year-on-year from 3.8% in September. Equally important, central bank policymakers and market participants will also seek to slow the pace of core inflation. The average of the central bank’s core inflation indicators slowed to a three-month annualized rate of 3.67% in September. If this metric were to move down to 3.0%-3.5% in the October reading, we believe this would reinforce the assumption that the peak of monetary policy rates has already been reached. We think that a slight slowdown in inflation along these lines would also keep the BoC on course to start reducing its policy interest rates from around the middle of next year.