Posthaste: Bank of Canada a lot closer to inflation target — and rate cuts — than it thinks, strategist says

financialpost.com:

Cooler-than-expected inflation numbers have left one strategist even more skeptical of the Bank of Canada‘s conservative forecast for when the consumer price index will return to target, suggesting the door to interest rate cuts could open much sooner than the central bank has predicted.

The Bank of Canada said in its January Monetary Policy Report that it doesn’t expect the consumer price index to come close to its two per cent target until 2025. But Taylor Schleich, a rates strategist at National Bank of Canada Financial Markets, said in note on Feb. 22 that there is a clear path to the two per cent target in the third quarter of this year.

“We’ve been skeptical for a while that it would take that long to get ‘home’ on inflation and this week’s softer-than-expected CPI report reinforced that skepticism,” Schleich said. “This sticky inflation outlook isn’t a new one and has helped policymakers justify pushing back on near-term rate-cut discussion.”

Statistics Canada reported on Feb. 20 that growth of the consumer price index slowed more than expected to 2.9 per cent — the first time it has fallen into the Bank of Canada’s target range of one to three per cent since mid-2021. The central bank sets interest rates to try to keep inflation at two per cent, the goal of the recent round of 10 interest rate hikes after the CPI spiked to 8.1 per cent in June 2022.

Now, National’s Schleich thinks the inflation target and rate cuts are well within the central bank’s sights even without inflation slowing any more than it already has.

“To get two per cent inflation, one doesn’t need to assume inflation decelerates at all from the recent run-rate,” Schleich said. “Indeed, simply plugging in the average monthly increase from the past