Canada: Growth may be on the cold side, but inflation temperature is just right - CIBC

Andrew Grantham, analysts at CIBC, explained that they don’t expected the Bank of Canada to cut rates as markets have been pricing, following today’s Canadian CPI data. 

Key Quotes: 

“Headline CPI rose by an on-target and on-consensus 2% year-over-year in April, with the average of the BoC’s core measures only a tick weaker at 1.9%. While inflation could be a little above target in the months ahead, and more so again toward year-end, that will be largely an energy story and as such of little concern for policymakers. With inflation neither too hot nor too cold, the Bank of Canada can concentrate on the growth numbers in determining any future moves in interest rates.”

“With inflation neither too hot nor too cold, the Bank of Canada can focus on indicators of growth in judging what, if any, adjustments have to be made to interest rates. With strength in the labour market and a March rebound in exports suggesting a pick-up in growth in the second quarter, we don’t expect that the Bank of Canada will need to cut interest rates as markets have been pricing. However, economic growth of only 1.5% this year and next, combined with little inflationary pressure, doesn’t necessitate a tightening either.”