Bank of Canada to extend the pause through the next meeting - RBC CM

Data released today in Canada, showed that the headline CPI inflation rose from 1.7% to 2.0% in December. Josh Nye, Senior Economist, at RBC Capital Markets point out that inflation sweet-spot gives the Canadian central bank time to be patient in raising interest rates. 

Key Quotes: 

“Canadian inflation unexpectedly rebounded to 2.0% in December. Expectations were for the headline rate to hold steady at 1.7%, but a significant jump in airfares (methodology changes have made this component extremely volatile over the last six months) added a surprising 0.3 percentage points.”

 “While headline inflation is being whipsawed by energy prices and airfares, core inflation remains relatively steady at (or a shade below) 2%. The BoC sees that as evidence the economy has been operating close to full capacity for more than a year now.”

“We’ve seen few signs of price pressures building. This inflation sweet-spot gives the BoC time to be patient in raising interest rates. We think they’ll want to see how the economy is progressing through this latest oil price decline, and expect the current pause in their tightening cycle will extend through their next meeting in March.”