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Scotiabank Above Consensus For CPI

CANADA
  • Scotiabank estimate CPI inflation at 0.7% M/M NSA and 5.0% Y/Y (cons. 4.8% Y/Y), "the biggest overshoot of the 2% inflation target since the BoC’s earliest days of inflation targeting".
  • They expect tighter COVID-19 restrictions to have boosted inflation, on top of January tending to be “a significant up-month for seasonal price pressures given considerations such as rolling out new lines of merchandise”.
  • Year-ago base effects should knock the Y/Y inflation rate somewhat lower, but the focus should remain upon hot annualized m/m inflation rates.
  • They reiterate the methodological differences with US CPI. Canadian CPI excludes used vehicle prices, which increased “another 2.3% M/M using the Black Book measure and 44% Y/Y which would add 1.8 percentage points to Canadian headline CPI” if applied as in the US, i.e. equivalent to at least 6-7% Y/Y.
  • “The BoC probably wouldn’t be surprised by such a move higher given that the January MPR indicated they expect inflation “to remain close to 5% over the first half of 2022””, with the debate instead over how much Y/Y may ebb and sequential inflation pressures.
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