RPT-PREVIEW-Canada Sept inflation rate seen at 1.9 pct

WHAT: Canada’s consumer price index for September

WHEN: Friday, Oct. 22, at 7 a.m. (1100 GMT)


(ECONCA: ) range

Headline CPI m/m +0.1 pct -0.1 pct

Headline CPI yr/yr +1.9 pct +1.7 pct +1.7 pct

to +2.1 pct

Core CPI m/m +0.3 pct +0.1 pct

Core CPI yr/yr +1.6 pct +1.6 pct +1.4 pct

to +1.8 pct

For individual forecasts see: [ID:nECICA]


Bank of Canada target: Inflation has been below the bank’s
2 percent target for six straight months. Core inflation, which
excludes volatile items and is closely watched by the central
bank, has also been trending lower than expected at 1.6 percent
for the past two months.

If the core rate slides closer to 1 percent, it could push
the bank to rethink its stance on monetary policy.

The CPI data will be measured against new quarterly and
annual inflation projections released by the bank on Wednesday,
following its rate announcement on Tuesday when it is expected
to hold interest rates steady at 1 percent.

Outlook: Over half of Canadian businesses see the inflation
rate dipping below 2 percent over the next two years, according
to the Bank of Canada’s Business Outlook Survey earlier this

However, neither business managers nor economists see any
real deflationary threat in Canada where consumers and
corporations are on a stronger footing than their U.S.
counterparts. They do see a prolonged period of low prices as
the economy struggles to regain traction.

* New tax regime: A blended provincial-federal sales tax
that went into effect in July in Ontario and British Columbia
has the potential to nudge up the CPI because consumers in
those big provinces must now pay sales tax on some previously
untaxed items.

So far, the new system does not appear to have had a
material impact on CPI. The central bank had estimated it could
cause a 0.6 percent temporary rise in the annual CPI, but said
it would ignore that effect when setting rates.

MARKET IMPACT: A further slowing of the inflation rate in
September could put more pressure on the Bank of Canada to keep
its key rate unchanged for longer, or even raise speculation of
a rate cut. That could cause the Canadian dollar to depreciate
from lofty levels seen this week when it briefly hit parity
with the U.S. dollar.

Most forecasters now expect the bank to keep rates on hold
until some time in 2011, following three increases between June
and September to 1 percent.

If inflation is higher than expected, the dollar could
strengthen and bond prices fall as investors see greater
chances of another rate hike soon.
(Reporting by Louise Egan; editing by Rob Wilson)

RPT-PREVIEW-Canada Sept inflation rate seen at 1.9 pct