Canadian consumer price index likely dropped again in April

Canadian consumer price inflation data for the month of April is set to release tomorrow. According to a TD Economics research report, the consumer price index is likely to have falling 0.6 percent again on a sequential basis, which might push headline CPI into deflationary territory, at -0.1 percent year-on-year, for the first time since 2009.

Energy prices are expected to have been the main driving force for the month, with gasoline likely to have recorded a similar fall of 17 percent seen in the prior month, while other energy products will also have been a drag on the headline rate.

Food prices are expected to have provided a partial offset, aided by considerable CAD depreciation, while several core components would be affected by COVID-19. Among the most affected categories are expected to be airfares, recreation and travel services, and apparel among others. New home prices do not imply any easing in homeowner replacement costs, which have the largest weight within the shelter component, but emergency measure might be a drag on rents.

“Core CPI measures should soften by less. We look for the BoC’s core measures to edge lower by 0.2pp on average to 1.6 percent y/y, while the ex food and energy index should soften to 1.4 percent y/y. While the return to a deflationary environment will not be welcomed by policymakers, we expect it should be fairly brief as easing lockdowns allow a return to a more inflationary environment this summer”, added TD Economics.