Canada: Core softness guides BoC path – TD Securities

TD Securities’ Robert Both anticipates Canadian headline Consumer Price Index (CPI) to reach 2.9% year-on-year in July, driven by elevated gasoline and food prices. However, core measures of CPI-trim and CPI-median are anticipated to be around 1.85%, lower than Bank of Canada’s forecasts, suggesting a mild underlying inflation trend that favors a continued emphasis on core inflation instead of headline inflation driven by oil prices.

Headline CPI is expected to increase by 0.1 percentage points to 2.9% year-on-year in July, with a 0.4% month-over-month rise, primarily due to higher gasoline prices following their decline in June. The July CPI report is also expected to validate a benign month for underlying inflation pressures, with CPI-trim/median and median inflation forecasts holding steady at 1.8/1.9% year-on-year or 1.6% on a three-month annualized basis.

Furthermore, the ex. food/energy (FXE) measure is expected to remain stable at 1.7% year-on-year, while diffusion indicators for overall inflation pressures are not anticipated to exhibit any substantial increase. A 1.8/1.9% CPI-trim/median print would place core CPI slightly below the Bank of Canada's projections for the July MPR (2.0% over Q3), despite headline CPI exceeding BoC forecasts for 2.5%.