Canadian Dollar: CPI test for BoC inflation warning – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad notes that Canada’s August Consumer Price Index (CPI) will test the Bank of Canada’s (BoC) warning that upside inflation risks have increased. Headline CPI is expected to remain at 3.0% y/y, while core measures are seen hovering around 2%. A core inflation reading above 2% would strengthen the case for a 25 bps BoC rate hike to 2.50% on October 28 and support the Canadian Dollar (CAD), while a reading at or just below 2% could prompt a modest dovish repricing.

Inflation path drives CAD prospects

"Canada’s August CPI (Monday) will test the Bank of Canada’s (BoC) warning that “the upside risks to inflation have increased.”"

"Headline CPI is seen at 3.0% y/y vs. 3.0% in July, core CPI (ex. food & energy) is expected at 2.1% y/y vs. 1.9% in July, and the policy-relevant core CPI (average of trim and median) is projected at 1.95% y/y for a second straight month."

"Core inflation above 2% y/y will reinforce the case for a 25bps BoC rate hike to 2.50% on October 28 (currently, 77% priced-in) and offer CAD support. In contrast, core inflation at or just under 2% y/y would leave CAD vulnerable to a modest dovish repricing."

"Over Q3, the BoC projects headline CPI at 2.5% y/y, and core CPI (average of trim and median) at 2.0% y/y."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)