• The Canadian Consumer Price Index is forecast to rise 3.2% YoY in January.
• Canada’s CPI inflation data is set to impact the timing of a Bank of Canada rate cut.
• Statistics Canada will publish the CPI inflation data on Tuesday.

The high-impact Consumer Price Index (CPI) data from Canada will be published by Statistics Canada on Tuesday at 13:30 GMT. The CPI inflation data is likely to have a significant influence on the market’s pricing of an expected Bank of Canada (BoC) interest rate cut this year, impacting the value of the Canadian Dollar.

What to expect from Canada’s inflation rate?

Economists expect the Canadian CPI to rise at an annual rate of 3.2% in January, slowing from a 3.4% growth recorded in December. On a monthly basis, the CPI inflation is seen rebounding to 0.4% in the same period after December’s 0.3% decline. The Core CPI rose 0.1% MoM in December. 

Alongside the CPI data, the Bank of Canada (BoC) will publish its closely watched Core Consumer Price Index data, which excludes volatile items such as food and energy prices. In December, the annual BoC Core CPI rose 2.6% while the monthly BoC Core CPI dropped 0.5%.

The expected slowdown in the headline annual Canadian CPI inflation could be attributed to lower energy and food prices. However, core CPI figures are likely to remain sticky, in the face of the BoC’s higher borrowing costs, which have led to rising mortgage interest costs and rents.

Previewing the Canadian inflation report, analysts at TD Securities (TDS) noted: “We look for headline CPI to fall 0.2pp to 3.2% y/y in Jan as prices rise by 0.4% m/m, but details should reinforce limited progress. Food/energy components will drive most of the deceleration as 3m rates of core CPI accelerate from Dec. That should result in a mixed tone overall and the persistence in underlying inflation sets a high bar for any dovish shift from the BoC in March.”

According to Canada’s overnight index swaps (OIS) curve, a first-rate cut by the BoC is likely seen in July. 

Bank of Canada Governor Tiff Macklem, at the Montreal Council on Foreign Relations event last week, said that “the policy discussion is shifting from whether or not the policy is restrictive enough to how long it should remain restrictive.”

“The path back to 2.0% inflation is likely to be slow,” Mackem said, warning that “risks remain, as shelter prices are now the biggest contributor to above-target inflation.”