PREVIEW-Canada inflation seen at 1.7 pct in April

WHAT: Canada’s consumer price index for April

WHEN: Friday, May 21 at 7 a.m. (1200 GMT)

REUTERS FORECAST: For headline CPI, the median forecast is
+0.2 percent m/m vs a flat reading in March, and +1.7 percent
y/y versus March +1.4 percent. The forecasts of 18 analysts
range from a low of +1.6 percent to a high of +2.2 percent.

For core inflation, the median forecast is +0.2 percent m/m
vs March -0.2 percent, and +1.8 percent y/y versus March +1.7
percent. Forecasts range from +1.6 percent to +1.9 percent.

For individual forecasts see: [ID: ECICA]

FACTORS TO WATCH: Both overall inflation and core CPI are
still expected to be comfortably below the Bank of Canada’s 2
percent target, meaning there will be no added pressure on the
bank to raise interest rates at its next chance on June 1.

Excluding one-time tax changes, the central bank has
projected April’s core and total CPI at near or just below 2
percent through 2012.

Core inflation temporarily jumped above the 2 percent
threshold in February, but it soon became obvious that was due
to the impact of the Winter Olympics in Vancouver, and in March
the rate eased more than expected.

However, the Canadian economy continues to show signs of
fast recovery, which could also translate into price increases
sooner rather than later. A record number of Canadians found
jobs in April and private business did most of the hiring. The
housing market remained strong in April and March manufacturing
sales beat forecasts, although exports that month were not as
strong as expected.

MARKET IMPACT:

Markets are watching the CPI report closely for any news
that could push the central bank into raising rates right away.
Most primary dealers forecast tighter borrowing costs as of
June 1 and markets have priced in a 60 percent chance of that
happening.

But the threat posed by the Greek debt crisis and sovereign
risk elsewhere in the euro zone could persuade Governor Mark
Carney to sit on the sidelines a bit longer, until July 20. The
bank has flagged debt woes as a key risk to its outlook.

If March inflation is higher than expected, the Canadian
dollar could strengthen against the U.S. dollar and bond prices
fall as investors anticipate the start of monetary tightening
almost immediately.

Market sentiment could shift toward expectations of a July
hike if inflation data is weaker than expected, triggering a
possible decline in the value of the currency.

Stock Today
(Reporting by Louise Egan; editing by Peter Galloway)

PREVIEW-Canada inflation seen at 1.7 pct in April