REPEAT: MNI 5 THINGS: Canadian Sept Y/Y Infl Seen Ticking Down

Repeats Story Initially Transmitted at 16:58 GMT Oct 18/12:58 EST Oct 18

By Yali N'Diaye   

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

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

particular attention: 

--STILL ABOVE TARGET

     Analysts in a MNI survey expect CPI inflation to edge up 0.1% in September,

for an annual rate of 2.7% in September, marking the second consecutive 12-month

slowdown in the year/year measure after reaching 2.8% in August and 3.0% in

July. That would still leave the annual rate above the Bank of Canada's 2.0%

mid-range target, but would make its narrative easier as it expects the total

inflation rate to ease back toward 2.0% in early 2019. Should analysts'

expectations materialize, the third quarter average would rise to 2.8%, above

the central bank's 2.5% projection.

--EYEING GASOLINE, AIRFARE

     The contribution of air transportation to annual inflation is expected to

further diminish. This scenario would validate the BOC's view counting on the

dissipation of the effects of past gasoline price increases and the more recent

jump in airfare to drive headline inflation down. In August, both gasoline

(-1.6% on the month) and air transportation (-2.2% on the month) were among the

top five downward contributors to monthly inflation, but remained the top two

largest upward contributors to the 12-month gain.

--HIGHER MORTGAGE RATES

     As interest rates continue to rise, mortgage interest costs could continue

to add upward pressure to core inflation. With a 5.8% year-over-year gain in

August and a 5.2% increase in July, this component was among the five top upward

contributors to the 12-month CPI increase over the last two months.

--UNDERLYING INFLATION AT TARGET

     The BOC has been looking through the impact of gasoline and airfare to

stress that core inflation readings have been remaining around target. While

this has been the case, its three preferred measures of core inflation have been

reflecting some upside pressure. The range ticked up to 2.0%-2.2% in August,

with both the CPI-common and the CPI-trim rates at the highest since February

2012, and all three measures rising despite the lower headline number. Ongoing

pressure on core readings would challenge the central bank's narrative.

--MONITORING TARIFFS IMPACT

     There has been no evidence of a significant impact of steel and aluminum

tariffs on CPI inflation so far, and both the BOC and Statistics Canada expect

it to be modest. However, the latest BOC's Business Outlook Survey published

Oct. 15 said that "many businesses reported pressure from tariff increases,

particularly those on steel and aluminum." The survey was conducted from Aug. 23

to Sept. 17. It added that "several" of these firms plan to pass on such

increases to customers. That being said, inflation expectations did edge down in

the survey, with most firms still expecting inflation to be in the upper half of

the target range over the next two years.

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