UPDATE 1-PREVIEW-Canada April inflation seen at 3.4 pct
(Updates to make clear these are final poll results)
WHAT: Canada's consumer price index for April
WHEN: Friday, May 20 at 7 a.m. EDT (1100 GMT)
REUTERS FORECASTS (final) ECONCA
April March Forecast
Headline CPI m/m +0.5 pct +1.1 pct
Headline CPI yr/yr +3.4 pct +3.3 pct +2.8 pct
to +3.7 pct
CPI m/m +0.2 +0.7 pct
Core CPI yr/yr +1.6 pct +1.7 pct +1.4 pct
to +1.8 pct
For individual forecasts see: [ID:nECICA]
FACTORS TO WATCH: Headline inflation is expected to reach a fresh 2-1/2 year high of 3.4 percent in April as gasoline prices jump further and food prices rise to a lesser extent.
Core inflation, which strips out volatile items like gasoline, is seen easing to 1.6 percent after a sharp jump in March.
Analysts expect most of the boost to the monthly consumer price index to come from commodities, partially offset by softer prices for autos, clothing and fresh vegetables.
The big question is whether the pinch from gas and food will be enough to worry the Bank of Canada, which must keep inflation in check while taking care not to stunt a fragile economic recovery with premature rate hikes.
Last month's eye-popping CPI numbers -- a 3.3 percent overall inflation rate -- prompted markets to start pricing in a slightly higher probability of rate hikes at every rate announcement date this year.
But the bank must also weigh mixed signals from the U.S. economy, which affects the health of exporters, and impact of the strong Canadian dollar in dampening prices.
The Bank of Canada, like the U.S. Federal Reserve, does not expect high commodity prices to have a lasting effect on inflation.
Targeting 2 percent inflation, the bank keeps a close watch on the core rate, which it says leads the headline figure. It has forecast 1.4 percent core inflation in the second quarter compared with 2.7 percent for headline inflation. It sees both measures converging at the target by the middle of 2012.
Most market players believe a May 31 rate hike is off the table for the Bank of Canada. But if inflation jumps more than expected in April, they could more confidently bet on a July rate increase, triggering a rally in the Canadian dollar.
A steady or slowing rate of inflation would signal the opposite, with the September, October and December policy announcement dates coming into focus.
According to a Reuters calculation of overnight index swaps, markets now see a 97.9 percent chance rates will remain on hold on May 31. They have fully priced in a quarter-point increase by Oct. 25. BOCWATCH
The bank lifted borrowing costs three times last year to 1.0 percent but has sat on the sidelines since September. (Reporting by Louise Egan; editing by Janet Guttsman)
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