Inflation data for Canada will be released on Wednesday. Analysts at TD Securities expect the consumer price index to drop another 0.6% m / m in April, which would push the stock into deflationary territory. They stress that energy prices will be the main driver.
“We hope the CPI will post a further 0.6% m / m drop in April, pushing the overall CPI in deflationary territory to -0.1% year-on-year for the first time since 2009. Energy prices will once again be the main driver for the month, with gasoline prices expected to drop similar to their 17% drop in March, while other energy products will also hit the headlines newspapers. Food prices will provide partial compensation, helped by a significant depreciation of the CAD, while several basic components will be affected by COVID-19. “
Core measures of the CPI are expected to decrease less, due to the large negative contribution of energy prices. We expect basic BoC measures to decline slightly by 0.2 pp on average to 1.6% yoy, while the xFE index should soften to 1.4% yoy. Although the return to a deflationary environment is not well received by policymakers, we expect it to be fairly brief as the easing of blockages should allow a return to a more inflationary environment this summer. “