How market bets and economist views for future BoC rate cuts have shifted after today’s inflation data
Economists now see BOC rate cuts on the horizon as inflation slows
Data released today showed that Canada’s annual inflation rate slowed to 6.3% in December, down from 6.8% in November. Economists say the lower-than-expected reading could prompt the Bank of Canada to take a more dovish stance on interest rates.
Money markets are now pricing in a 25 basis point rate cut by the end of the year, up from 15 basis points before today’s data release. Economists at several major banks, including TD and CIBC, have also revised their forecasts to include a rate cut this year.
The shift in market and economist views comes as inflation shows signs of cooling. The Bank of Canada has raised its key interest rate seven times since March in an effort to tame inflation. The central bank has said it will continue to raise rates until inflation returns to its target of 2%.
However, economists say today’s data could give the Bank of Canada pause. The lower-than-expected inflation reading suggests that the central bank’s aggressive rate hikes are starting to have an impact.
The Bank of Canada is scheduled to make its next interest rate decision on March 8. Economists will be closely watching the central bank’s statement for any signs of a shift in its monetary policy stance.
Here are some additional details from today’s inflation report:
- The core inflation rate, which excludes volatile items like food and energy, rose to 5.3% in December, up from 5.2% in November.
- The Bank of Canada’s target for the core inflation rate is 2%.
- The annual increase in food prices slowed to 11.0% in December, down from 11.4% in November.
- The annual increase in energy prices slowed to 20.3% in December, down from 23.4% in November.
- The annual increase in shelter costs rose to 7.1% in December, up from 6.8% in November.
