Notes from the Desk – CAD CPI – It’s Still Hot in Here
The Canadian inflation data for April surprised to the upside this morning.
- YoY CPI 4.4% vs 4.1% expected.
- YoY core-CPI measures came in at 4.2% meeting forecasts.
The increase in headline CPI was led by gasoline and food prices. While the Bank of Canada (BoC) will find some solace from core CPI continuing to decline, they will likely be worried that the inflation basket excluding energy, food, and mortgage costs is not showing signs of cooling.
- A strong labour market coupled with seemingly sticky inflation raises questions as to whether rates are high enough to bring inflation down to the 2% target.
- With only Q1 GDP to be released before the next BoC meeting (June 7th), there is a non-trivial chance that the BoC concludes rates are not restrictive enough, and either raises 25bps or signals that further hikes could be necessary.