Canadian Inflation and Business Outlook Survey: Signs of Economic Softening

The final consumer price index report for 2024 will be released on Tuesday, and it will attract significant attention as people look for indications of easing price pressures in Canada. However, it is expected that the data may be skewed due to a Goods and Services Tax (GST) holiday that started on December 14, which impacts certain consumer purchases, including some groceries, toys, and dining out.

Analysts are predicting that headline inflation will decrease slightly in December to 1.5% from 1.9% year-over-year. This anticipated slowdown is primarily attributed to a decrease in food price inflation, which should compensate for a rise in energy prices. When excluding these volatile components, core inflation is expected to remain stable at 1.9%.

The Bank of Canada focuses on preferred "core" measures that adjust price data to eliminate the effects of indirect taxes. This method provides a clearer perspective on inflation trends. The trim and median core measures are expected to hover around 2.5%, reflecting a softening economy that continues to dampen domestic price pressures.

Moreover, the rising costs of mortgage interest are likely to have a significant impact on the overall Consumer Price Index (CPI) growth and core measures as well. It is anticipated that these costs will slow down in the future due to the Bank of Canada's interest rate cuts from the previous year. As per the latest statistics, if mortgage interest costs had not been factored into the calculations for November, the year-over-year growth in median and trim measures would have been lower by an average of 0.5% (2.2% and 2.1%, respectively).

In addition to the CPI report, the Bank of Canada will also release its Business Outlook Survey for the fourth quarter on Monday. It is expected that inflation expectations will continue to decline, as they have remained close to the central bank's 2% target for the past four months. The decline in job openings suggests a decrease in hiring demand, which may further reduce expected wage growth. The Bank of Canada will be closely monitoring any further weakening in crucial capacity issues, such as labor shortages and supply chain problems, as these could signal a deeper economic slowdown, a wider output gap in the economy, and potential disinflationary risks in the near future.

Retail Sales Predictions

On Thursday, Canadian retail sales for November are expected to remain steady, in line with Statistics Canada’s advance estimate. There was a notable seasonally adjusted increase of 8% in auto sales, while sales in gas stations are likely to show a rebound due to rising prices. However, this growth may be offset by weaker core sales.

Overall, both the CPI report and the Business Outlook Survey will provide valuable insights into the current economic climate in Canada, highlighting the potential for further softening in inflation and overall economic activity.

inflation, economy, CPI