Posthaste: Risks the Bank of Canada will hold off until July to cut interest rates just got higher

financialpost.com:

Just a week before the Bank of Canada decides on interest rates new evidence has some economists questioning their forecasts on the first cut — and this time it comes from the central bank itself.

Inflation expectations in the Bank of Canada’s business and consumer outlook surveys yesterday showed improvement, but they are still high, raising the possibility that the policy makers may wait until the next survey before making a move, said Stephen Brown, Capital Economics Ltd.’s deputy chief economist for North America.

That survey comes out July 15, which would mean the central bank would have to hold its interest rate until its July 24 meeting, which goes against the current consensus call for a June cut.

Inflation expectations “are still too high and raise the risk that the bank will wait to see developments in the next surveys in July before it cuts interest rates,” Brown said in a note.

The survey revealed there is work to be done on the inflation front.

While Canadians believe inflation has slowed, their expectations in the near term have barely changed, the Bank of Canada said.

Moreover, their expectations for long-term inflation, five years from now, have actually increased, with respondents believing that high government spending and lofty home and rent prices will take longer to resolve, the survey said.

Interestingly, the Canadians surveyed perceived inflation to be at 5.3 per cent, much higher than the actual latest reading of 2.8 per cent, with 60 per cent of them saying food prices were a big part of that perception.

Brown said the recent easing of food price inflation may lower those expectations in the next survey, but the high rate of rent inflation and a rebound in gas prices may limit the decline.

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