MNI Canada Data Preview: Don't Get Carried Away By CPI Jump

--Headline CPI To Hit Target In November,But underlying Trend STill Below 2%

--October GDP Seen Progressing Further on

By Yali N'Diaye

     OTTAWA (MNI) - Analysts expect Canadian inflation to hit the Bank of

Canada's 2.0% target in November, a jump from 1.4% in October, but they warned

not to be carried away by the headline number that will mostly reflect higher

gas prices and base effects.

     In fact, when Statistics Canada publishes inflation data Thursday,

underlying inflation is still expected to be well below 2%, even as the lower

Canadian dollar could have a supporting effect.

     For Scotiabank economist Derek Holt, the consensus on inflation is even too

high. But even if headline CPI came in at 1.8%, as the he expects, "one would

hope that a central bank wouldn't find a lot of information in changes in CPI

inflation that are motivated by base effects, gas prices and seasonality," he

wrote in a commentary.

     The other key indicators will be October retail sales, also on Thursday, as

well as October GDP on Friday.

     Analysts in a MNI survey expect retail sales to rise 0.5% in October, and

0.3% excluding autos.

     For GDP, analysts expect a 0.1% increase, as gains in real estate,

wholesale sales, and ongoing strength in the labor market all point to higher

growth, which should be moderated by weakness in goods-producing industries, led

by manufacturing and utilities.

     Given the 1.5% drop in real manufacturing shipments in October, Action

Economics analyst Ryan Brecht told MNI he expects manufacturing to be the main

negative contributor to real GDP. 

     On the other hand, energy is expected to be the largest positive

contributor, while retail sales should also "make a meaningful positive

contribution," and construction production should bring support as well. Brecht

expects October GDP to rise 0.2%.

     It would put growth on track to reach an annualized rate of 2.6% in the

fourth quarter, roughly in line with the 2.5% projected by the Bank of Canada.

     At IHS Economics, Director Arlele Kish, who also expects fourth quarter GDP

growth to come in at 2.6%, expects uncertainties to still put off a rate hike to

April 2018.

     "The economy is performing well and inflation is firming coming closer to

'home' as the Governor states," she told MNI. "However, the risks to the outlook

are still heavily dependent on so many 'unknowns' like trade policy outcomes,

home borrowing patterns, and the digital economy that it is better to remain

cautious given that we are in a new economic environment."

     In addition to CPI, retail sales and GDP, Statistics Canada will release

Tuesday the first estimates from the Canadian Housing Statistics Program on

residential property in the Toronto and Vancouver Census Metropolitan Areas

(CMAs). This should provide more insight about the foreign ownership rate in

particular.

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

[TOPICS: M$C$$$]