Posthaste: Why the Bank of Canada could still cut interest rates as early as April
This week’s inflation “setback” was not great news for anyone hoping for a Bank of Canada rate cut sooner rather than later.
The consumer price index actually picked up in December to 3.4 per cent, an apparent blow to the central banks’ efforts to put a lid on rising prices.
The rise in the headline pace was expected, but what caught economists’ attention was the increase in measures that filter out volatility. CPI trim and median core rates, which the Bank of Canada prefers, both rose more than expected.
“If you are looking for data to signal a rate cut is imminent, this isn’t it,” wrote Leslie Preston, managing director at TD Economics, in a note.
“December’s inflation report underscores that the last mile of getting inflation all the way back to 2 per cent is the hardest.”
The data pushed back market bets on the timing of the Bank’s first cut from April to June. This was the last inflation reading before the central bank makes its decision on Wednesday when it is expected to hold its benchmark interest rate at 5 per cent.
Some economists, however, including TD, are still holding out for an earlier cut, believing the economy will have cooled enough by the early spring, even if inflation isn’t quite at target.
“As Governor Macklem pointed out in December, the BoC doesn’t need to see 2 per cent to begin normalizing monetary policy, but rather be confident it is getting there,” said Preston.
Tu Nguyen, an economist with RSM Canada, also sees the Bank reducing rates as early as April.
“Given that the economy has slowed to a crawl and that inflation at this point is mostly driven by shelter, keeping the rates higher for longer will not help,” he said.
After the inflation data came out, Capital Economics pushed back its
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