Notes From the Desk – Canadian Inflation – A Fly In The Ointment
While the headline inflation number for December met expectations, the acceleration in the core measures should raise concerns at the Bank of Canada (BoC).
By the Numbers.
- YoY headline CPI met expectations at 3.4%.
- Both core measures came in 0.2% higher than expected.
- CPI Trim: 3.7%
- CPI Median: 3.6%
Implications.
- Based on what is priced into the yield curve, the expectation is for the BoC to start cutting in the spring.
- Investors were hoping that the BoC would start laying the groundwork for an easing cycle in their meeting next week.
- Today’s data makes it more difficult for the BoC to declare that the war against inflation has been won and start opening the door for cuts.
- Surprisingly, post-CPI yields are only up ~ 5bps, suggesting the market remains confident that a slowing economy and rising unemployment will force the Bank to start cutting sooner rather than later.
