MNI 5 THINGS:Canadian April Inflation To Hold Above BOC Target

By Yali N'Diaye   

     OTTAWA (MNI) - Statistics Canada will release the April Consumer Price

Index data on Friday morning. Ahead of the release, we highlight five themes for

particular attention:    

     --RISING OIL PRICES

     Analysts in a MNI survey are expecting total inflation to rise 0.3% on the

month and 2.3% year-over-year, keeping the same pace as in March. With the

ongoing rise in oil prices, gasoline prices are again expected to be a key

positive contributor to inflation in April. In March, gasoline prices rose 2.9%

on the month and 17.1% year-over-year. Excluding gasoline, prices rose 0.2% on

the month and 1.8% on the year.

     As a result, keeping an eye on the index excluding energy and excluding

gasoline will be particularly important, as the Bank of Canada is more likely to

look through higher oil prices than not. It stressed in its April 18 Monetary

Policy Report that monthly CPI fluctuation have been reflecting movements in

gasoline prices, which it considered "transitory."

     --UNDERLYING MEASURES 

     Still, underlying measures of inflation are expected to remain close to 2%,

consistent with an economy that is operating close to capacity, and solidifying

the case for the central bank to carry on the tightening path.

     The Bank of Canada's April 9 Business Outlook Survey found that over the

next two years, more than half of businesses surveyed - 53%, the highest rate

since the first quarter 2012 - expect inflation to be between 2% and 3%, the

upper end of the BOC's 1%-3% range. Meanwhile, 46% expect inflation to be

between 1% and 2%, the lowest percentage in six years.

     The minimum wage increase in Ontario since January could add pressure on

items such as restaurant food prices, which could be reflected in particular in

the CPI-common, as the BOC has pointed out that this measure has been more

affected than others by the minimum wage hikes.

     In March, the range of three preferred measures of inflation remained at

1.9% to 2.1%.

     --CANADIAN DOLLAR IMPACT

     April could also see some upward pressure from the weakening of the

Canadian dollar against its U.S. counterpart from mid-March through mid-April.

     Food would be particularly impacted and will thus be an item to monitor.

     Food prices were down 0.3% on the month in March for a 1.7% 12-month gain.

     --GOODS VS SERVICES

     With rising gasoline prices, non-durable goods prices could again be pushed

up. They increased 0.3% in March, leading to a 3.0% gain year-over-year, the

largest gain since October 2014.

     Meanwhile, durable goods inflation edged up just 0.3% year-over-year.

     Overall goods inflation was up 1.8% year-over-year in March, the largest

increase since November 2011.

     Services price gains also accelerated in March, with a 12-month increase of

2.7%, the largest since September 2011.

     --BOC WON'T PANIC

     The BOC is unlikely to be moved by another month of above-target inflation,

which would be the third in a row, especially if gasoline explains a good

portion of it.

     In its April MPR, it clearly signaled it does anticipate accelerating

inflation on a temporary basis. Upward pressure from gasoline and minimum wage

increases are expected to "persist longer" than downward pressure from

electricity or food prices, the BOC said. As a result, inflation was revised up

for 2018 from January's estimates, but should still return to the 2% target

"thereafter".

     Inflation was 2.1% in the first quarter, above the 1.7% the BOC had

expected in January (subsequently revised up in April to 2.1%). The central bank

sees an acceleration to 2.3% in the second quarter.

     As a result, a 2.3% reading in April, the same as in March, is unlikely to

move the central bank's view.

--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com

[TOPICS: MACDS$,M$C$$$]