MNI 5 Things To Look For: Canadian Y/Y CPI To Dip in January

By Yali N'Diaye

     OTTAWA (MNI) - The Canadian inflation data will be published Friday

February 23. Analysts' forecasts in a MNI survey center on a median estimate of

0.5% month-to-month and 1.5% year-year, after -0.4% and +1.9%, respectively, in

December.

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

     --ANTICIPATED BY BOC

     When Statistics Canada releases the January numbers, the year-over-year

inflation figure could drop as much as 0.4 percentage points from 1.9% in

December.

     However, the headline figure should not be a source of concern for the

data-dependent Bank of Canada, which has already explicitly anticipated the base

effect, which analysts cited as the main reason for January's inflation

slowdown.

     Indeed, all-item CPI increased 0.9% in January 2017 from December 2016.

     And in its January Monetary Policy Report, the central bank said,

"inflation will likely ease in January 2018, reflecting the transitory effects

of elevated gasoline prices a year earlier." Inflation is then expected to rise.

     So reading beyond the headline number will be particularly important this

month, just as the BOC is likely to look through it.

     -- MONTHLY ENERGY BOOST

     Most analysts expect energy prices to boost the month-to-month CPI.

     The median MNI forecast is +0.5%, more than erasing December's 0.4%

decline, which was the largest monthly decrease since November 2016.

     Gasoline prices should be the main source, after falling 3.3%

month-to-month in December.

     --MINIMUM WAGE INCREASES

     Minimum wage increases were implemented at the beginning of January in

Ontario, and it remains to be seen how businesses responded in terms of their

pricing, especially in sectors like restaurants.

     According to the BOC, minimum wage increases, implemented and scheduled,

are expected to temporarily lift inflation by 0.1 percentage point in 2018.

     In a December 30 report, the BOC staff estimated that only "a fraction" of

businesses should raise prices in the short term as a result of higher minimum

wages.

     In Ontario, the minimum wage was raised to C$14 from C$11.60 per hour from

January 2018 and will be raised to C$15 from January 2019. It will then be

indexed on inflation.

     In Alberta, the minimum wage will rise to C$15 per hour in October 2018

from C$13.60 currently.

     In Canada, the BOC estimates that 8% of employees work at the minimum wage

and past experience shows that such raises have affected 15% of employees at the

lowest wages.

     --CORE INFLATION

     Given the base effect that will dampen headline inflation, more attention

should be given to underlying inflation measures.

     While few analysts actually forecast the three preferred measures of core

inflation, they mostly expect a stable reading in January.

     The range of core measures edged up to 1.6%-1.9% in December from 1.5%-1.9%

in November, with both CPI-common and CPI-trim picking up 0.1 percentage point,

while CPI-median remained stable at 1.9%.

     With the output gap in effect closed, the BOC expects inflation to remain

close to its 2% mid-range target through the end of 2019.

     --TELEPHONE SERVICES

     Telephone services prices were the main downward contributor to monthly

inflation in December, with a record 7.6% drop from November.

     But according to TD analysts, "although competition has lately intensified

in that sector, we expect to be near the bottom in January." 

     It remains to be seen whether competition kept the downward pressure in

January and to which extent.

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

[TOPICS: M$C$$$]