MNI 5 THINGS: Oil To Weigh On Canada CPI,But Core Infl To Hold

By Yali N'Diaye   

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

Index Wednesday. Ahead of the release, we highlight five themes for particular

attention:

     - Analysts in a MNI survey expect headline inflation to decline by 0.4% on

the month, more than erasing October's 0.3% advance. On a 12-month basis,

however, the all-item CPI targeted by the Bank of Canada is expected to ease to

1.8% from 2.4% in October. While the BOC projected a 2.3% average inflation rate

in the fourth quarter, it has already signaled a likely downward revision in

January. In its Dec. 5 policy statement, it said inflation "is expected to ease

in coming months by more than the Bank had previously forecast, due to lower

gasoline prices." 

     - Lower crude oil prices are indeed expected to translate into a decline in

gasoline prices that will weigh on both the monthly and the annual inflation

rates. In October, gasoline prices fell 3.2% on the month, and were the second

largest downward contributor to monthly inflation after traveler accommodation.

Excluding gasoline, CPI rose 0.5% on the month.

     - On the other hand, with the ongoing monetary policy tightening pushing

mortgage rates higher, the mortgage interest cost is likely to continue to put

an upward pressure. It increased 7.0% year-over-year in October, the largest

increase in 10 years, making it the second largest upward contributor to the

12-month CPI gain.

     - Given the ongoing dampening impact of oil prices, the focus should remain

on non-energy prices. CPI excluding energy rose 0.5% in October, for a 12-month

gain of 2.0%. The BOC will also continue to focus on its three preferred

measures of underlying inflation, which have held around the 2% target so far,

and are expected to continue to do so in November. 

     - Methodology changes continue to add uncertainty to inflation forecasts.

Changes introduced with the publication of the March CPI report make forecasts

of air transportation difficult. Starting with Wednesday's report, changes to

the way Statistics Canada factors in smartphone prices adds another source of

uncertainty as to whether the new approach will be inflationary or not.

Year-over-year comparisons for those two categories should therefore be made

"with caution." Telephone services and air transportation were the the second

and third largest upward contributors to the monthly CPI gain in October.

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

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