April inflation reading expected to sprout up

Following two months of declines in the consumer price index, economists are expecting a higher inflation reading when figures for April come out on Friday.

The consensus forecast calls for a 1.8 per cent year-over-yearincrease in the price index in April. The expected increase would follow year-over-year CPI gains of 2.1per cent in January, twoper cent in February and1.6 per cent in March.

On a monthly basis, the consensus forecast is for an increase of 0.6 per cent from March to April.

The main story for April will once again be about energy prices, "with a near-eight per cent increase in gasoline prices during the month," CIBC Capital Markets economist Nick Exarhos wrote in a recent commentary.

After removing more-volatile food and energy prices, the inflation readingshould see a month-over-monthincrease of 0.3 per cent, Exarhos wrote.

"Food prices should see an easing intheir pace of year-on-year decline," registeringa drop of 1.5 per cent year-over-year in April, he added.

Economists at TD said they expectdeflation in food prices to stabilize, although retail competition across grocery stores could still put some downward pressure on prices in the near term.

CIBCexpects inflation to firm up further toward the end of this year as crude oil stagea modest comeback, among other factors.

Exarhos said the overall inflation rate is expected to surpass 2 per cent in the fourth quarter of 2017 and the first three months of next year.

Retail sales data for March

On the same day the inflation figures are released by Statistics Canada, the market will also get a look at retail sales data for March, with the consensus forecast projecting a month-on-month gain of 0.3 per cent, following February's dip of 0.6 per cent.

However, there is some disparity in the Marchforecasts. TD said retail spending is expected to end the first quarter "on a solid note," and the bank isprojecting a month-on-month increase of 0.7 per cent. National Bank is forecasting a 1.2 per cent increase in total retail sales for the month.

"Auto dealers enjoyed a strong March as new vehicles sales posted a fresh monthly record while a possible rebound in used vehicle sales could provide further support" to the overall increase," TD said in a commentary.

Meanwhile,CIBCWorld Markets sees weakness in auto saleslimiting the overallincrease to just 0.1 per cent.

"Retailingis likely to see a softer end to what was still a good quarter for consumption," wrote CIBCWorld Markets chief economist Avery Shenfeld.