PREVIEW-Canada March inflation seen at 1.7 pct y/y

WHAT: Canada’s consumer price index for March

WHEN: Friday, April 23 at 7 a.m. (1100 GMT)

REUTERS FORECAST: For headline CPI, the median forecast is
+0.3 percent m/m vs Feb +0.4 percent, and +1.7 percent y/y
versus Feb +1.6 percent. The forecasts of 18 analysts range
from a low of +1.4 percent to a high of +2.0 percent.

For core inflation, the median forecast is +0.1 percent m/m
vs Feb +0.7 percent, and +1.9 percent y/y versus Feb +2.1
percent. Forecasts range from +1.6 percent to +2.2 percent.

FACTORS TO WATCH: The CPI report will be overshadowed by
the Bank of Canada interest rate announcement and quarterly
projections earlier in the week. Markets will be most
interested to see if the data supports the bank’s outlook on
inflation and the bank’s signals, if any, on the timing of
future interest rate hikes.

February inflation figures sparked calls for an early rate
hike since core inflation, a key figure for the Bank of Canada,
jumped to 2.1 percent annually. The bank targets 2 percent
inflation but tolerates a range of 1 to 3 percent.

But some temporary pressures on prices should start to wane
in March, namely the effect of the Vancouver Winter Olympics on
hotel and retail prices as well as unusually high vehicle
prices seen earlier in the year.

Inflation expectations appear to be well anchored in
Canada. Nine out of 10 senior business managers surveyed by the
Bank of Canada in the first quarter expected inflation to stay
within the target range, although a growing number, 40 percent,
saw it hovering at the high end of the range.

MARKET IMPACT: A higher than expected inflation number
would boost investor expectations of a central bank interest
rate hike on June 1, rather than on July 20 as most market
players now predict. The prospect of a rate hike in Canada
before the U.S. Federal Reserve moves to raise rates could push
the Canadian dollar higher and cause bond prices to fall.

An easing of inflation beyond what is forecast would
reinforce the view that the bank risks little by keeping rates
on hold until July, possibly knocking the dollar lower and
pushing up bond prices.

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

PREVIEW-Canada March inflation seen at 1.7 pct y/y