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."