The Canadian consumer price inflation data for the month of December is set to release tomorrow. According to a TD Economics research report, the headline inflation is likely to have remained stable at 2.2 percent on a year-on-year basis, with prices unchanged on the month.
Energy prices are likely to have contributed mainly to the year-on-year print, thanks to the base-effects from 2018 when gasoline prices dropped 6.5 percent sequentially; gasoline prices are expected to have remained stable in December which will see the year-on-year contribution from energy rise by around 0.2 percentage point.
Countering this is a smaller rise from food prices on a year-on-year basis, along with a more modest contribution from the core owing to a sharp rise in airfares last December. With Canadian airlines still dealing with capacity constraints due to the 737 Max groundings, a holiday-induced rise continues to be a risk for this December but anything near the 21 percent sequential rise is not expected like last year.
“Looking past the ex. food and energy index, we see downside risks to the Bank of Canada’s core measures owing to a sizeable m/m increase last year and muted pressures from a flat print this month. This, alongside the widening output gap last year should weigh on measures of core inflation, although we expect the average to hold over 2 percent”, added TD Economics.
