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“TD looks for inflation to fall below target in July with headline CPI forecast to decelerate to 1.7% y/y from 2.0% in June, in line with the market consensus, as a 0.2% m/m increase is overwhelmed by base-effects after last July saw the largest seasonally adjusted increase in ex-food & energy prices since 2008,” TD Securities analysts said previewing tomorrow’s inflation data from Canada.

Key quotes

“Our forecast includes a 0.1% increase in the ex. food & energy basket which would see this measure of core inflation edge lower to 1.9% y/y from 2.4% in June.”

“We also look for further deceleration in the Bank of Canada’s preferred core measures, with CPI-trim and CPI-median projected to edge lower by 0.1pp to 2.0% and 2.1%, respectively, while CPI-common should hold at 1.8% y/y. However, this would leave the average of the three unchanged at 2.0% y/y after rounding.”

“We think the risks around the report are asymmetric however: an upside surprise will not change the narrative around the global slowdown (and markets haven’t priced in much for the September BoC date), but a disappointing print could cause markets to pull rate cut expectations forward.”