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Economy Bank of Canada’s outlook survey to offer clues on inflation

A girl looks up at a toy sales display in a JC Penney store in this Nov. 29, 2013 file photo. Figures released on Jan. 14, 2014, will reveal how U.S. retailers performed during the holiday season.

LUCAS JACKSON/REUTERS

They don't promise the same impact as last week's economic indicators – notably the Canadian trade and jobs reports that took a toll on the dollar – but this week's reports still offer plenty to chew on.

The Bank of Canada will get the week going with the winter edition of its business outlook survey Monday.

"With the BoC noting increased concern over the downside risks to inflation, the inflation expectations component of the winter business outlook survey (BOS) will be watched closely for signs of further slippage," said economists at Royal Bank of Canada.

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"In the autumn [business outlook survey], 71 per cent of respondents expected inflation below the bank's 2-per-cent target, which is the highest level since Q1 2009," they added in a report.

"Other sections of the BOS that will bear watching include: investment intents (in machinery and equipment), which have declined over the last three surveys; and ability to meet unexpected demand (an output gap proxy), which has improved in each of the last three surveys. A deterioration across these metrics in the BOS would feed expectations of more dovish rhetoric emerging in the BoC's next meeting statement and [monetary policy report] on Jan. 22.

Tuesday will tell us how U.S. retailers fared over the holiday season. Many economists expect to see that sales inched up by 0.1 per cent in December, though by a better 0.4 per cent when autos are taken out of the equation.

"If poor weather was a factor preventing customers getting to car lots, some will have struggled to reach the shopping malls as well," said Andrew Grantham of CIBC World Markets, who, unlike some economists, believes sales actually dipped 0.1 per cent in December.

"And with the rising prominence of November's sales season pulling spending away from December, core retail sales could have struggled to post meaningful growth as well."

On Wednesday, Canadians get to satisfy the national obsession with the housing market when the Canadian Real Estate Association releases a report expected to show home sales rose 7 per cent in December from a year earlier, while average prices climbed 10 per cent.

The MLS home price index, an adjusted measure, is forecast to show a gain of 4.8 per cent. "Price gains remain solid despite cooling activity, reflecting relatively tight supply in major markets," said senior economist Benjamin Reitzes of BMO Nesbitt Burns.

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"In addition, pricing tends to lag sales, so we could see prices come under pressure in the first half of 2014."

In a world fretting about disinflation, Thursday's U.S. inflation report will also be closely watched.

Economists generally believe that a rise in prices at the gas pump boosted overall consumer prices in January, by 0.3 per cent from a month earlier, leading to an annual inflation rate of 1.5 per cent.

"This will be the first monthly increase in this indicator since September and should mark the fastest pace of price gains since June," said economists at Toronto-Dominion Bank.

So-called core prices, which strip out volatile items and help to guide central banks, are believed to have increased on a monthly basis by 0.1 per cent and on an annual basis by 1.7 per cent.

"The three-month and six-month annualized pace of core inflation should tick modestly higher, underscoring the reversal in the disinflationary moment observed in recent months," the TD economists said.

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"We expect the pace of both headline and core inflation to begin drifting higher in the coming months as favourable base effects abate, with inflation converging to the Fed's 2-per-cent year-over-year target by Q2," they added, referring to the Federal Reserve's target for the pace of price increases.

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