Markets have been paying close attention to the economy recently. Next week should provide plenty of economic data to fuel trading.

The data flow isn’t all that heavy in Canada next week. Capacity utilization numbers will be released on Monday, and the Consumer Price Index on Friday.

CIBC World Markets says that gas prices will put upward pressure on the CPI monthly rate, although the yearly rate should ease off as a big increase drops out from a year ago. “Watch the Bank of Canada’s newly-defined core CPI measure as the key to policy implications.”

“The latest ramping up of food and energy prices has driven a massive wedge between core and headline inflation rates,” observes BMO Nesbitt Burns. “This gap could widen in May, with core inflation expected to move lower on a year-over-year basis. The Bank of Canada now focuses on CPIX as its measure of core inflation, and it is projected to slip to 2.1% from 2.3% in April. Similarly, the traditional core measure is expected to ease to 1.9%. This is the last CPI report the Bank will see before the next decision on interest rates on July 17,” it notes.

TD Bank economists say, “It is our expectation that core inflation will slip below the mid-point of the central bank’s 1%-3% target range in the months to come, dampened by softness in the overall economy. With inflation remaining benign and Canadian growth likely to prove sluggish, we anticipate that the Bank of Canada will lower short-term interest rates by a further 50 basis points by summers end — in lockstep with the U.S.”

Apart from the CPI, CIBC says “markets are likely to take their cue from U.S. data and further developments in what is now the height of the American ‘earnings warning’ season.” The data schedule is somewhat more crowded in the U.S. Retail trade numbers and the Fed’s Beige Book are to be released on Wednesday. BMO believes that past big jumps in retail sales numbers will not be repeated this time around. “Unseasonably cool weather, mounting job losses from the slowing economy, a tepid 1.6% advance in same-store sales, and a smaller-than-expected decline in vehicle sales suggest that retail sales will post only a slight increase.”

Thursday will see the Producer Price Index released in the United States. “The rise in producer prices will have a minor impact on the inflation outlook, and core prices should be up just 0.1%, as the April rise in computer prices will not recur and the strong dollar should dampen import prices,” says BMO Nesbitt Burns.

On Friday, the U.S. will get its CPI data, along with industrial production and capacity utilization numbers, and finally the Michigan consumer confidence numbers. CIBC World Markets notes, “In the U.S., the key question is whether consumer momentum can hold up long enough to turn around the employment picture, or whether sagging labour markets hit spending first.”

The earnings front is rather quiet next week, leaving the market open to receive warnings. Shermag Inc., Richelieu Hardware Ltd and Aber Diamonds may report, but aren’t committed to a day. Leitch Technology will report Tuesday. ADF Group Inc., Hartco Corporation, Husky Injection Molding and Spectra Premium Industries Inc. are scheduled for Thursday.

First Call’s research director Chuck Hill says “Typical for the last month of a quarter, this week is another of those slow weeks for earnings reports. Probably the biggest earnings report of the week is Heinz on Thursday. It is a good week to take off to prepare for or recover from June graduations and weddings.”