Bank of Canada in a 'difficult place' on rate cuts: Economists on the latest inflation numbers
Canadian inflation would have accelerated further in January were it not for Ottawa’s tax holiday, putting the Bank of Canada in an awkward position when it comes to its next interest rate decision, some economists said.
The consumer price index rose 1.9 per cent in January year over year, according to Statistics Canada data released on Tuesday. That met expectations, but minus the GST/HST holiday, which ended on Feb. 15, economists estimated inflation would have risen to 2.5 per cent for the month.
Signs of inflation heating up could spell the end of the Bank of Canada’s rate-cutting cycle. The central bank started hiking interest rates due to a large increase in the rate of inflation.
At the same time, Canada’s economy faces an existential threat in the form of United States President Donald Trump’s tariffs.
With several crosscurrents at play, here’s what economists think the Bank of Canada might do at its next interest rate announcement on March 12.
“Overall, a middle-of-the-road inflation print after an upside surprise in December is less desirable than what we and the central bank would like to see,” Abbey Xu, a Royal Bank of Canada economist, said in a note.
Excluding the effects of taxes, CPI-trim and CPI-median, the Bank of Canada’s preferred inflation measures, rose to 2.7 per cent year over year, though she said they were “more in line” with Bank of Canada targets on a monthly basis.
Xu said the “super-core” measure of CPI-trim, which excludes shelter, pulled back, while the impact of mortgage costs on CPI growth is shrinking as lower interest rates work their way through the economy.
Still, a bit more than half of the CPI’s components posted price increases above three per cent on a three-month annualized
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