MNI PREVIEW: Canada Mar CPI Seen 1.1%; Biggest Drop Since 2006

--April May Be Worse As Shutdowns, Oil Collapse Continue

By Greg Quinn

     OTTAWA (MNI) - Canada's inflation rate likely slowed to 1.1% in March with

the biggest drop in more than a decade led by collapsing oil prices and business

shutdowns linked to the COVID-19 pandemic.

     Consumer price gains will slow by half from February's 2.2% according to

the MNI economist median, around the bottom of the BOC's 1%-3% target range. The

inflation rate hasn't declined that much since a 1.4pp drop in September 2006. 

     "We expect a similar deceleration in April before CPI bottoms out near 0%

y/y in May," Toronto-Dominion Bank economists wrote in a research note. "The

path from there is more uncertain and hinges upon the duration of the shutdown

and strength of the recovery, but even in a scenario where restrictions are

rolled back in May we expect inflation to remain below 1% through Q3."

     The BOC cut interest rates to around zero on April 15 and committed to

buying bonds and corporate securities that could add more than CAD200 billion to

its balance sheet. Governor Stephen Poloz halted regular economic forecasts last

week and the BOC said inflation may slip to zero this quarter, and in a

worst-case scenario prices could fall into the middle of next year.

     That length of year-over-year price declines would rival slumps unseen

since the Korean War or the end of the Great Depression. In the best-case

scenario, the BOC suggested inflation will rebound and quicken beyond 2% early

next year.

     On a monthly basis the MNI median shows prices falling 0.4% in March, a

swing from an increase of 0.4% in February. 

     Retail gasoline prices dropped more than 15% in March, enough on its own to

drive CPI down. Lower global crude oil prices slow Canadian inflation twice over

because energy is one of the country's top exports, and some benchmark prices

fell below zero this week. 

     March was also when the full force of health closures took hold for

restaurants, hotels and widened out to all but "essential" firms across most of

the nation. 

     Restrictions remain in place this month, adding to price reduction

pressure. Costs of some items like meat may jump as supply networks are

hindered, but those can't offset the broader demand weakness. Consumer

confidence has plunged to record lows as 1 million Canadians lost their jobs in

March.

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

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