• Global markets await fireworks in second half of the week
  • Canadian CPI will just be a placeholder on path to the BoC’s next decision
  • BoC speech may inform how monetary policy transmission has been affected

Most of the focus will be upon Canadian CPI (8:30amET). A BoC speech will probably offer low market risk and a Canadian auto strike has been postponed as negotiations continue.

There were no material overnight developments as global markets await key central bank decisions and data from Wednesday through Friday. The OECD revised 2023 global growth up a few tenths to 3% this year mostly in the US, and down a couple of tenths to 2.7% next year. Eurozone CPI was revised down a tick to 0.5% m/m and 5.2% y/y in August with core left unchanged at 5.3% y/y and markets ignored this.

India accounts for 0.7% of both Canadian exports and Canadian imports and so the flaring dispute over an alleged assassination involves little direct economic risk.

Most estimates for August’s inflation are in the 0.2–0.4% m/m NSA range that would lift the year-over-year rate from 3.3% to between 3.7–4.0%.

Higher gas prices will play a significant role. Key will be underlying core measures. Trimmed mean and weighted median CPI were up by over 4% m/m SAAR in July and have been trending around 3½%. Services inflation and housing both flared in July while core goods inflation was soft (charts 2, 3). This update will be juxtaposed against recent updates that have pointed to strong wage gains, a rebound in employment and several rebounding indicators like hours worked, manufacturing, wholesale and maybe retail.

Chart 1: BoC's Preferred Core Measures; Chart 2: Canadian Goods & Services Inflation; Chart 3: Shelter Cost Soaring High in Canada

That said, this is just one of two inflation reports before the BoC’s next decision on October 25th, along with another set of readings on jobs and wages plus the BoC’s two consumer and business surveys including measures of inflation expectations. We may well get some market volatility around today’s numbers, but there is a lot of further information on the path to the BoC’s full forecast update in October.

BoC DepGov Kozicki speaks on ‘how household differences have affected monetary policy since the onset of the Covid-19 pandemic.’ The speech will be released at 1:45pmET. This may inform BoC thinking about factors that have influenced the monetary policy transmission effects. There will be a short audience Q&A but no presser.

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