-- This week's focus turns to March inflation data, which will help clarify how much of the recent energy shock resulting from the Iran war is feeding through beyond gasoline, said TD.
Canada is slated to release the consumer price index for March at 8:30 a.m. ET on Monday.
With inflation having been relatively well-behaved heading into the conflict, the Bank of Canada is likely to look through near-term energy-driven volatility, provided core measures remain contained, stated TD. That sets up an important backdrop for the April 29 BoC policy decision, where the bank expects the policy rate to remain unchanged at 2.25%.
That said, TD predicts Canada's central bank to monitor this shock carefully and act if circumstances change.
In response to higher fuel costs, the Prime Minister Mark Carney government announced a temporary suspension of federal fuel excise taxes last week. These taxes amount to 10 cents/liter on gasoline and 4 cents/liter on both diesel and aviation fuels. The suspension will run from Monday through Labour Day (Sept. 7), delivering about $2.4 billion in tax relief.
The move is framed as short-term affordability support for households and fuel-intensive sectors. The Liberal government also secured a majority in parliament last week after sweeping three federal byelections in Ontario and Quebec, pointed out the bank.
TD won't need to wait long to see how Canada's finances are faring, with the Spring Economic Update set for April 28. This update will show how war-related shocks and new affordability measures affect the outlook.
Importantly, this will be the first spring update under the new fiscal calendar adopted last fall, and markets will watch closely to see how temporary relief measures and higher defense and infrastructure ambitions are reconciled with medium-term deficit management, added the bank.
Last week's data releases continued to show subdued, but stabilizing, activity, according to TD. National home resales were nearly flat in March, and prices slipped. Housing starts also weakened. The Canadian housing market remains stuck between uncertainty and affordability challenges, with early-spring activity lagging typical seasonal levels.
However, manufacturing and wholesale sales improved in February, rebounding from January's decline. This recovery was driven by better transportation equipment output, as auto assembly lines returned to normal after shutdowns for retooling. While these gains are positive, they follow earlier softness and leave activity levels only slightly higher than a year ago.