- Economics: Plunging commodity prices and growing economic slack will continue to be the key themes for lower Canadian consumer price inflation. For October, given that gasoline and natural gas prices have declined by double-digits and wage pressures appear to be abating, expect consumer prices to ease further with headline CPI falling by a dramatic 0.4% M/M. This will bring the annual rate of consumer price inflation to 3.3% Y/Y. On a seasonally-adjusted basis, all-items CPI is expected to fall by a more modest 0.1% M/M. The Bank of Canada’s core consumer index should remain flat on the month (but rise by 0.2% M/M on a seasonally adjusted basis), though the core inflation rate is expected to rise to a one year high of 1.9% Y/Y. In the coming months, with both moderating forces likely to remain well entrenched, analysts expect Canadian consumer price pressures to ease further.
- Foreign Exchange: Given the downside surprises that we saw earlier this week in both US and UK inflation for October, the risks likely lie to the downside for Canadian inflation as well. But an increase in property taxes, which are factored into Canadian CPI every October, will probably keep core CPI a little stronger than it would be otherwise. While equity action will be the bigger driver for USDCAD, a downside surprise to inflation could help support the drive toward 1.30.
- Fixed Income: In the aftermath of the sharp downside surprise in U.S. CPI for October, one can only think there could be downside risks for Canada, too. The market response could be slightly tempered by base effects, however, which should send annual core CPI higher. The bias is to look for a bull flattener in the bond market in response to this release. The flattener originates from diminishing inflation fears at the long end of the curve, combined with only a limited capacity for the short end to rally given already aggressive central bank expectations.
Canada: DATA PREVIEW - CPI (October): 20 November 2008
November 20th, 2008 · No Comments
Tags: Canada Canadian Economy
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