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CPI Preview: Shelter And Core Measures Remain Key

CANADA
  • Tomorrow’s CPI report for Dec comes fresh after BoC surveys indicated an economy running close to capacity in further evidence after a strong jobs report two weeks ago.
  • Bloomberg consensus has headline up 0.1pps to 4.8% Y/Y, in a close call with an equal number of analysts seeing 4.9% Y/Y (mean 4.84% Y/Y). Most expect the non-seasonally adjusted rate at -0.1% M/M or 0.0% M/M.
  • As for the BoC’s various core measures, limited survey responses imply the average of the three could edge up 0.1pp on rounding to 2.8% Y/Y, led by CPI-common which has lagged the surge in inflation at just 2.0% Y/Y in Nov.
  • There is two-way risk going into this release with OIS pricing in roughly a 70% chance of a hike in Jan rather than waiting until March.
  • A strong print with rises in the underlying core measures could see a Jan hike largely cemented with a further rise in shorter-term yields and a return of USDCAD declines, whilst a particularly weak print could well push the BoC to wait until March whilst it assess Omicron uncertainties.
  • Some sell-side previews can be found here: https://roar-assets-auto.rbl.ms/documents/13517/CanadaCPIPrevJan2022.pdf
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