Canada: Core softness guides BoC path – TD Securities

TD Securities’ Robert Both expects Canadian headline CPI to rise to 2.9% year-on-year in July, driven by higher gasoline and food prices, while ex. food/energy components stay muted. Core measures CPI-trim and CPI-median are projected around 1.85%, below Bank of Canada forecasts, reinforcing a benign underlying inflation backdrop and supporting continued focus on core rather than Oil-driven headline moves.

Headline and core inflation outlook

"Headline CPI is forecast to firm by 0.1pp to 2.9% y/y in July as prices rise 0.4% m/m, fueled by higher gasoline prices after their sharp pullback in June."

"The July CPI report should also confirm another benign month for underlying inflation pressures with CPI-trim/median forecast to hold at 1.8/1.9% y/y or 1.6% on a 3m annualized basis."

"We also look for the ex. food/energy (xFE) measure to hold stable at 1.7% y/y and CPI diffusion indicators are not expected to show any large increase for the breadth of inflation pressures."

"A 1.8/1.9% print for CPI-trim/median would have core CPI tracking slightly below BoC projections from the July MPR (2.0% over Q3), despite headline CPI tracking above BoC forecasts for 2.5%."

"We look for headline CPI to firm by 0.1pp to 2.9% y/y in July as prices rise by 0.4% m/m on positive contributions from food and energy products, as travel services provide an offset."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)