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CPI Preview (Apr 16): June Cut Expectations Particularly Sensitive

CANADA
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  • Fresh from the BoC’s dovish musings on Wednesday (“We are seeing what we need to see, but we need to see it for longer”), markets keenly await the March CPI report after soft prints for the first two months of the year.
  • Headline CPI is seen ticking a tenth higher to 2.9% Y/Y in March, although that would still be a third month below the 3% upper target limit.
  • Most analysts see a close call between 2.9% and 3.0% with some skew lower from one at 2.5% and another at 2.8%.
  • The BoC’s preferred core measures are expected to ease marginally, averaging 3.1% Y/Y after the 3.15% Y/Y in Feb.
  • More notably, those Y/Y figures would imply a three-month run rate slowing from 2.2% to just 1.5% annualized and the six-month from 2.6% to 2.5%.
  • We also watch more traditional core metrics (particularly low in Feb with CPIxFE at 2.3% ar over six months and CPIX at just 1.1% ar over six months) plus the breadth of gains (our estimates show slightly over 40% of the basket growing >3% Y/Y vs pre-pandemic average of 28%).
  • Sensitive June cut pricing: Last week’s US CPI strength has pushed pricing of a June BoC cut from 20bps to ~14bps. We suspect even an in-line print would help start a move back towards 20bps again as it would remove a risk of Canadian inflation following the US higher. Equally though, an upside surprise could see a significant pushing out in rate cut expectations on US inflation correlation fears.
  • Immediate reactions could be limited, especially with the Budget due later Tuesday, but the CPI report should set the tone for the week ahead barring Budget surprises. There is however still the April CPI report to be seen (May 21) before the Jun 5 BoC decision.
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  • Fresh from the BoC’s dovish musings on Wednesday (“We are seeing what we need to see, but we need to see it for longer”), markets keenly await the March CPI report after soft prints for the first two months of the year.
  • Headline CPI is seen ticking a tenth higher to 2.9% Y/Y in March, although that would still be a third month below the 3% upper target limit.
  • Most analysts see a close call between 2.9% and 3.0% with some skew lower from one at 2.5% and another at 2.8%.
  • The BoC’s preferred core measures are expected to ease marginally, averaging 3.1% Y/Y after the 3.15% Y/Y in Feb.
  • More notably, those Y/Y figures would imply a three-month run rate slowing from 2.2% to just 1.5% annualized and the six-month from 2.6% to 2.5%.
  • We also watch more traditional core metrics (particularly low in Feb with CPIxFE at 2.3% ar over six months and CPIX at just 1.1% ar over six months) plus the breadth of gains (our estimates show slightly over 40% of the basket growing >3% Y/Y vs pre-pandemic average of 28%).
  • Sensitive June cut pricing: Last week’s US CPI strength has pushed pricing of a June BoC cut from 20bps to ~14bps. We suspect even an in-line print would help start a move back towards 20bps again as it would remove a risk of Canadian inflation following the US higher. Equally though, an upside surprise could see a significant pushing out in rate cut expectations on US inflation correlation fears.
  • Immediate reactions could be limited, especially with the Budget due later Tuesday, but the CPI report should set the tone for the week ahead barring Budget surprises. There is however still the April CPI report to be seen (May 21) before the Jun 5 BoC decision.