The big Canadian banks weigh in on today's Canadian CPI release, due at 13:30 BST

BMO: Consumer prices likely rose 0.2% in September, which would be the biggest headline increase since April. Energy prices played a big role, with gasoline and fuel oil prices rising 2%-to-3%, driven by the supply disruption from the devastating hurricanes which hit the Southern U.S. Clothing is a key sector to watch this month, as it has risen over 3% on average in September during the past five years. We’ll be watching for any signs that the loonie’s strength in recent months dampened this seasonality. Indeed, this is a theme that could prove prominent as our models suggest the Canadian dollar’s huge appreciation in Q3 will weigh meaningfully on CPI through the course of 2018. Seasonally, September tends to see modest inflation, so we’re looking for seasonallyadjusted CPI to be up 0.2% in the month. Our call would lift annual inflation two ticks to 1.6% y/y (though just barely, implying some downside risk).

CIBC: The hurricanes that hit the US last month gave a lift to gasoline prices, and we’ll see some of those effects in the CPI figures released in Canada next week. A 5% jump in average pump prices—one that already dissipated through the first half of October—should be enough to help power a 0.4% gain in monthly headline (NSA), lifting the year-on-year rate to 1.7%. On more stripped down measures, progress in getting more “on-target” inflation will be a slower affair. Exfood and energy prices are likely to see their annual rate take a breather at 1.5%, while the common component measure of CPI could gain a tick. The recent—albeit temporary—strength in the C$ is likely to have a bit of a dampening effect in seeing us converge to the BoC’s 2% objective, despite narrower slack in the economy. Forecast Implications—Underlying inflation trends are improving, but only slowly. That augurs for a similarly gradual pace from the Bank of Canada going forward. The spike in gasoline in September should reverse in October, but base effects should still keep energy as a solid positive contributor at the end of this year and into the beginning of 2018.

RBC: We expect headline CPI rose 0.3% m/m in September (+1.7% y/y) after a 0.1% m/m gain in August. A bit over 0.1pp of that gain should come from post-hurricane spikes in gasoline prices, while the remainder should be reflective of inflationary pressures building, as slack has been absorbed. Seasonal declines in fruit and vegetable prices should weigh MoM, but smaller decreases than last year should see the YoY price growth rise to 1.7%. Ex-food and energy prices are anticipated to be up 0.4% m/m, with the YoY rate unchanged at 1.5%. The average of the BoC’s three core measures rose for the third consecutive month in August (to 1.53%)—and could rise again—though the BoC has not focused heavily on this in recent communication.

Scotiabank: Could see a little higher headline reading to about 1.5% y/y but the prime focus will be upon whether the average of the three core CPI measures continues to signal modestly firming price pressures (chart 2). Forecasting monthly changes in the core measures is generally avoided because almost by definition one needs the tails of the spectrum of prices laid bare before determining how to weed out extraneous factors which is what the various central tendency core measures do. In terms of the headline CPI call, there are a few considerations. One is that base effects would subtract about a tenth off headline year-ago CPI inflation. Two is that September is a typically modest up-month for seasonally unadjusted CPI and that could lift the year-ago rate by a tick to cancel out the base effect argument. So far, the arguments presented suggest an unchanged year-ago CPI rate. A determining factor, however, could be that gas prices should add to headline CPI pressures. Gasoline prices accelerated in September (chart 3) by enough to add an extra 0.1–0.2 to year-ago headline CPI inflation and 0.1–0.2 to month-ago seasonally unadjusted CPI. That said, this is looking like a transitory lift from gas prices since they have eased off again in October so far.

20 Oct 2017 - 12:45- EnergyEconomic Commentary- Source: BMO/CIBC/RBC/Scotiabank

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