Canada CPI could indicate another jump in inflation

Statistics Canada is set to release its August Consumer Price Index (CPI) data on September 19, with economists and researchers of five major banks forecasting the data. Headline inflation is expected to be at 3.8% year-on-year, the highest since April and further above the 2% target. On a monthly basis, CPI is seen at 0.2% vs. the prior release of 0.6%.

Economists expect higher energy prices to push headline price growth higher, with a 3.7% YoY rate in August, up from 3.3% in July. The Bank of Canada’s preferred core measures may tick higher on a YoY basis due to soft year-ago ‘base effects’. However, the focus will be more on the recent three-month average growth rate for the’median’, ‘trim’, and trim services ex-shelter (sometimes called’super core’) measures, which are still’sticky’ at rates above the top end of the BoC’s inflation target.

An increase in gasoline prices could have translated into a 0.2% increase in the CPI in August, with the 12-month rate of inflation expected to come up from 3.3% to a 4-month high of 3.8%. The core measures preferred by the Bank of Canada should also increase in the month, with CPI-med likely moving from 3.7% to 3.8% and CPI-trim from 3.6% to 3.7%.

Economists expect a solid 0.4% MoM increase in headline CPI in August, with base effects implying the YoY reading climbs to 4.1%. Part of the strength in August will be due to further increases in energy prices. Higher three-month inflation would increase the chance of further BoC rate hikes, possibly as soon as October.