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Yahoo
2 days ago
- Business
- Yahoo
Bank of Canada expected to hold key interest rate this morning, even as the economy shows underlying signs of weakness
The Bank of Canada is widely expected to hold its key interest rate steady at its announcement at 9:45 a.m. ET today. Twenty of 26 economists polled by Reuters said they expect Canada's central bank to hold. Many have noted April's higher-than-expected core inflation figures and gross domestic product (GDP) data published last Friday showing the economy growing faster than forecast. 'Arguments for a rate cut still remain,' RBC economists Nathan Janzen and Abbey Xu wrote on Tuesday, noting weak employment, with manufacturing jobs down 30,600 in April, a stagnant housing market and underlying signs in the GDP release that the economy has slowed. RBC nonetheless expects the Bank of Canada (BoC) to hold as it watches for further signs of economic weakness, and possible government stimulus measures. In a Monday note, BMO economist Priscilla Thiagamoorthy pointed to the BoC's stated focus on 'price stability' — a phrase used frequently in the Bank's April announcement. 'With underlying price pressures remaining uncomfortably high, we are expecting the BoC to keep policy rates unchanged in June,' she wrote. Prior to the April decision, the BoC had issued seven consecutive cuts to its benchmark rate, starting in June 2024, to bring its policy rate to its current level of 2.75 per cent. Follow Yahoo Finance Canada's live blog for news, updates and analysis of the Bank of Canada's interest rate announcement below. The BoC's April statement and governor Tiff Macklem's opening remarks stressed 'price stability' as a recurring theme. 'We will support economic growth while ensuring inflation remains well controlled,' Macklem said. But the path forward on those objectives was complicated by April inflation data, in which the Bank's preferred measures, CPI-median and CPI-trim — core measures that filter out indirect tax effects — jumped more than expected. Headline inflation dropped, with the removal of the carbon tax. The trade war's impact showed up in the April inflation data, with prices for groceries and vehicles climbing. The core figures, each back above three per cent, returned to a pace last seen before the BoC began cutting interest rates, noted BMO chief economist Douglas Porter. "Signs of renewed weakening in the economy on one hand, as shown by the latest employment data, but stronger core inflation on the other, makes for a tough decision," wrote CIBC economist Andrew Grantham. The Bank of Canada should step off the sidelines with a rate cut today, say economists pointing to factors including a deceptive inflation reading and weak jobs data in April. The BoC is widely expected to hold its rate steady at 2.75 per cent. Three-quarters of economists in a recent poll by Reuters say they expect a second straight pause. Desjardins chief economist Jimmy Jean is the minority arguing for a cut. "Indecisiveness comes at the expense of responsiveness. A June cut, by contrast, would allow the Bank to get ahead of a downturn at a time when upside tail inflation risks have diminished," he wrote in a recent report. "In other words, if Macklem still takes the lags of monetary policy seriously, this is the moment for him to take the lead." Jean notes Macklem's "slightly hawkish" tone in interviews after the recent G7 Summit in Alberta. He says April's cooler inflation print was the catalyst that turned markets against a June cut, despite rising core measures favoured by the central bank. "The Bank of Canada should probably disregard the noise currently affecting its core CPI measures," Jean wrote. The C.D. Howe Institute's Monetary Policy Council is also calling for the BoC to lower its policy rate today. The think tank says six out of nine members at its recent meeting favoured a cut. "The general assessment was that trade uncertainty is undermining confidence everywhere, and is a material negative for Canadian consumption and investment," C.D. Howe wrote last week. "Several participants emphasized weak job numbers, particularly recent payroll employment reports and job losses in the prime age group, as decisive indicators that demand is flagging and a disinflationary output gap is opening up," the think tank added. "Others noted that looking through the impact of the elimination of the consumer carbon tax on the total CPI, various measures of underlying inflation were above two per cent and, in many cases, rising." Stephen Brown, deputy chief North America economist for Capital Economics, says shrinking domestic demand within the April GDP figures reinforces his view that the Bank will cut rates today. Extreme trade uncertainty, stronger-than-expected GDP growth, and incoming fiscal stimulus are among the reasons economists are calling for the Bank of Canada to hold its policy rate today. The BoC is widely expected to keep its rate steady at 2.75 per cent. Three-quarters of economists in a recent poll by Reuters say they expect a second straight pause. "We're entering a fresh set of unknowns by way of how the Trump administration could handle its response to a federal court's ruling against the use of IEEPA tariffs," Scotiabank chief economist Derek Holt wrote in a recent report, referring to the ongoing legal battle over the U.S. president's authority. "The BoC's next forecasts are due on July 30, and that may be a more suitable moment for re-evaluating uncertainty," he added. "It would also take us past whatever may happen around the July 9 expiration of the delayed U.S. tariffs on the EU and closer to the expiration of the 90-day suspension of more punitive tariffs on China by mid-August." Holt also notes the BoC has never cut its benchmark policy rate before when the most recent core inflation data are as high as they are today. Turning back to the trade war, BMO chief economist Doug Porter says "the great tariff inflation scare seems to be everywhere except in the data." "All of this adds up to a less pressing need for monetary policy to support the economy," he wrote in a report. "There's little debate that the heavy trade clouds will linger, but there is a growing sense that markets and the economy can deal with that uncertainty better than initially expected." RBC economists Nathan Janzen and Abbey Xu say today's decision will be another close call for the BoC. However, they ultimately see policymakers opting to pause. "The BoC has already cut rates by 225 basis points over the past year—more than other central banks," they wrote in a report. "It still has room for further cuts if economic conditions weaken, but will need to consider any government spending support measures, which are better suited to provide targeted, timely, and temporary assistance to affected sectors than interest rate cuts." Prime Minister Mark Carney has promised his government will pass an income-tax cut by Canada Day. "Fiscal stimulus is coming, and the BoC may be leery towards combining additional monetary stimulus, given the recent history of overdoing it on both counts," Holt wrote. The BoC's April statement and governor Tiff Macklem's opening remarks stressed 'price stability' as a recurring theme. 'We will support economic growth while ensuring inflation remains well controlled,' Macklem said. But the path forward on those objectives was complicated by April inflation data, in which the Bank's preferred measures, CPI-median and CPI-trim — core measures that filter out indirect tax effects — jumped more than expected. Headline inflation dropped, with the removal of the carbon tax. The trade war's impact showed up in the April inflation data, with prices for groceries and vehicles climbing. The core figures, each back above three per cent, returned to a pace last seen before the BoC began cutting interest rates, noted BMO chief economist Douglas Porter. "Signs of renewed weakening in the economy on one hand, as shown by the latest employment data, but stronger core inflation on the other, makes for a tough decision," wrote CIBC economist Andrew Grantham. The Bank of Canada should step off the sidelines with a rate cut today, say economists pointing to factors including a deceptive inflation reading and weak jobs data in April. The BoC is widely expected to hold its rate steady at 2.75 per cent. Three-quarters of economists in a recent poll by Reuters say they expect a second straight pause. Desjardins chief economist Jimmy Jean is the minority arguing for a cut. "Indecisiveness comes at the expense of responsiveness. A June cut, by contrast, would allow the Bank to get ahead of a downturn at a time when upside tail inflation risks have diminished," he wrote in a recent report. "In other words, if Macklem still takes the lags of monetary policy seriously, this is the moment for him to take the lead." Jean notes Macklem's "slightly hawkish" tone in interviews after the recent G7 Summit in Alberta. He says April's cooler inflation print was the catalyst that turned markets against a June cut, despite rising core measures favoured by the central bank. "The Bank of Canada should probably disregard the noise currently affecting its core CPI measures," Jean wrote. The C.D. Howe Institute's Monetary Policy Council is also calling for the BoC to lower its policy rate today. The think tank says six out of nine members at its recent meeting favoured a cut. "The general assessment was that trade uncertainty is undermining confidence everywhere, and is a material negative for Canadian consumption and investment," C.D. Howe wrote last week. "Several participants emphasized weak job numbers, particularly recent payroll employment reports and job losses in the prime age group, as decisive indicators that demand is flagging and a disinflationary output gap is opening up," the think tank added. "Others noted that looking through the impact of the elimination of the consumer carbon tax on the total CPI, various measures of underlying inflation were above two per cent and, in many cases, rising." Stephen Brown, deputy chief North America economist for Capital Economics, says shrinking domestic demand within the April GDP figures reinforces his view that the Bank will cut rates today. Extreme trade uncertainty, stronger-than-expected GDP growth, and incoming fiscal stimulus are among the reasons economists are calling for the Bank of Canada to hold its policy rate today. The BoC is widely expected to keep its rate steady at 2.75 per cent. Three-quarters of economists in a recent poll by Reuters say they expect a second straight pause. "We're entering a fresh set of unknowns by way of how the Trump administration could handle its response to a federal court's ruling against the use of IEEPA tariffs," Scotiabank chief economist Derek Holt wrote in a recent report, referring to the ongoing legal battle over the U.S. president's authority. "The BoC's next forecasts are due on July 30, and that may be a more suitable moment for re-evaluating uncertainty," he added. "It would also take us past whatever may happen around the July 9 expiration of the delayed U.S. tariffs on the EU and closer to the expiration of the 90-day suspension of more punitive tariffs on China by mid-August." Holt also notes the BoC has never cut its benchmark policy rate before when the most recent core inflation data are as high as they are today. Turning back to the trade war, BMO chief economist Doug Porter says "the great tariff inflation scare seems to be everywhere except in the data." "All of this adds up to a less pressing need for monetary policy to support the economy," he wrote in a report. "There's little debate that the heavy trade clouds will linger, but there is a growing sense that markets and the economy can deal with that uncertainty better than initially expected." RBC economists Nathan Janzen and Abbey Xu say today's decision will be another close call for the BoC. However, they ultimately see policymakers opting to pause. "The BoC has already cut rates by 225 basis points over the past year—more than other central banks," they wrote in a report. "It still has room for further cuts if economic conditions weaken, but will need to consider any government spending support measures, which are better suited to provide targeted, timely, and temporary assistance to affected sectors than interest rate cuts." Prime Minister Mark Carney has promised his government will pass an income-tax cut by Canada Day. "Fiscal stimulus is coming, and the BoC may be leery towards combining additional monetary stimulus, given the recent history of overdoing it on both counts," Holt wrote.
Yahoo
20-05-2025
- Business
- Yahoo
End of carbon tax slows Canada's headline inflation rate but hides 'much less friendly' core data
Canada's inflation rate fell in April, with the Consumer Price Index (CPI) pulling back to 1.7 per cent annually from 2.3 per cent the month before, according to Statistics Canada data released Tuesday. Lower energy costs, with the removal of the carbon tax in many provinces and falling crude oil prices, were a main driver. Core measures of inflation, however, rose in April, leading economists to scale back expectations for a Bank of Canada (BoC) interest rate cut at its next meeting on June 4. The core indicators, favoured by the BoC, leave out the effect of indirect taxes and thus weren't affected by the carbon tax removal, CIBC economist Andrew Grantham said in a note published shortly after the data were released. "Signs of renewed weakening in the economy on one hand, as shown by the latest employment data, but stronger core inflation on the other makes for a tough decision for the Bank of Canada at its early June meeting," Grantham wrote. April employment figures were essentially flat, with unemployment jumping to 6.9 per cent. Economists had expected the core inflation figures, CPI-median and CPI-trim, to hold steady at 2.9 per cent and 2.8 per cent respectively, according to consensus estimates published by CIBC Economics. CPI-median rose 3.2 per cent year-over-year in April, and CPI-trim rose 3.1 per cent. The core measures "are now running at their fastest pace in a year — i.e., back before [the BoC] began cutting rates," wrote BMO chief economist Douglas Porter, who said those numbers revealed a "much less friendly" inflation picture. "After a weak jobs report handed the Bank a good reason to cut, this back-up in core above three per cent pretty much washes that away." The core numbers can also be "impacted by broad changes in food prices given their heavy weight in the overall basket," CIBC's Grantham said. Grocery prices and the cost of travel tours rose. The price of groceries has been rising faster than overall inflation for three straight months, up 3.8 per cent annually in April. Rising grocery prices, as well as a jump in vehicle prices, which have gone up close to 3.0 per cent since last year, "appears related to the simmering trade war," Porter said. In a statement sent to Yahoo Finance Canada, Jules Boudreau, a senior economist at Mackenzie Investments, argued that uncertainty on the new federal government's fiscal plans might also cause the BoC to hold in June. "Higher federal government spending will boost growth and inflation in Canada," Boudreau said. "And with the federal government deciding not to publish a budget this spring, the Bank of Canada won't want to get aggressive with rate cuts before it gets clarity on deficits." The BoC "will clearly be concerned" about the core inflation data, wrote Desjardins Group economist Royce Mendes, but he noted that the effects of lower energy prices could "further affect price dynamics in a positive way." Gasoline is among the goods that "tend to form the basis of inflation expectations," Mendes said, and Desjardins therefore expects "a sharp reversal of the spike" in those expectations in the BoC's most recent surveys. The change in energy prices in April was significant — gasoline prices dropped over 10 per cent from March and fell 18.1 per cent from a year ago. Natural gas costs were down 18.9 per cent on the month and 14.1 per cent on the year. The BoC's decision-makers "should have an early internal indication of inflation expectations" before their next decision, Mendes said. "With the economy clearly weakening in recent months, lower inflation expectations should keep central bankers on track to cut rates 25 basis points in June," Mendes wrote. Economists had expected the carbon tax removal to drive a significant slowdown in overall prices in April, with expectations the annual rate would fall to 1.6 per cent, according to the consensus estimates published by CIBC. The April CPI data follow March figures that slowed unexpectedly to 2.3 per cent from 2.6 per cent in February, as gasoline and travel costs dropped. John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf. Download the Yahoo Finance app, available for Apple and Android.
Reuters
15-04-2025
- Business
- Reuters
Canada's inflation in March surprisingly slows to 2.3%, core measures elevated
Summary On a monthly basis, the consumer price index rose by 0.3% Analysts had forecast CPI at 2.6% annually, 0.6% monthly Inflation slowed by gasoline cost, travel tours prices OTTAWA, April 15 (Reuters) - Canada's annual inflation in March surprisingly slowed to 2.3%, three notches below the prior month, largely helped by lower gasoline and travel tours prices, data showed on Tuesday. The core measures of inflation, which are closely tracked by the Bank of Canada, however, stayed elevated, Statistics Canada said. Analysts polled by Reuters had expected the year-on-year inflation rate to remain at 2.6%, and on a monthly basis to rise by 0.6%. On a month-on-month basis, inflation rose by 0.3%, Statscan said. The rate of increase of consumer prices in Canada has shown signs of acceleration after seven months of staying at a level of 2% or below. A sales tax break from mid of December to mid-February had helped mask the actual price increases. This was evident in the price increase of food and alcoholic beverages, which reversed their previous contraction and jumped in March. Food prices jumped by 3.2% and alcoholic beverages increased by 2.4% on an annual basis. But this increase was largely offset by a deceleration of 1.6% in the price of gasoline. Without gasoline, the consumer price index rose by 2.5% in March, Statscan said. "The decline was largely a result of lower crude oil prices amid concerns of slowing global oil demand and slowing economic growth related to the threat of tariffs," the statistics agency said. Year-over-year, prices for travel tours declined 4.7% in March and air transportation prices fell 12.0%. The drop in air travel coincided with decreased Canadian air travel to the U.S., Statscan said. President Donald Trump's tariffs on a variety of Canadian imports and Canada's retaliatory measures are expected to increase prices but also suppress economic growth, putting the central bank in a bind on whether to cut or increase rates. The BoC will announce its monetary policy decision on Wednesday. Currency markets are betting the odds of a pause after seven consecutive rate cuts by the bank at around 60%. One of the core measures - CPI-median, or the centermost component of the CPI basket when arranged in an order of increasing prices, was at 2.9% in March, same as the prior month. The other core measure CPI-trim, which excludes the most extreme price changes, slowed a tad to 2.8%, Statscan said.
Yahoo
18-03-2025
- Business
- Yahoo
Bank of Canada's job just got 'even harder': Economists on the latest inflation numbers
February's consumer price index report took economists by surprise as the rate of inflation accelerated on a year-over-year basis to 2.6 per cent in February, outpacing analyst estimates for a 2.2 per cent increase. Statistics Canada said the end of the GST/HST holiday in mid-February was the main reason for the pickup in inflation, which jumped from 1.9 per cent in January. Here's what economists think the new data means for the Bank of Canada and interest rates. The 'upside surprise makes the Bank of Canada's job even harder,' Stephen Brown, deputy chief North America economist at Capital Economics Ltd., said in a note. He said the inflation numbers cast doubt on expectations that policymakers will cut interest rates for an eighth consecutive time at their next policy meeting on April 16. The CPI outstripped estimates, but, more importantly, the central bank's preferred measures of core inflation, which remove taxes, also rose last month, Brown said. CPI-trim and CPI-median increased to an annualized three-month average rate of 3.3 per cent, which is above the top end of the Bank of Canada's inflation target range of three per cent. 'The upshot is that, despite the downside risks to the economic outlook from U.S. tariffs, we may need to revisit our view that the (Bank of Canada) will cut interest rates again as soon as next month,' Brown said. The Bank of Canada warned it had considered holding interest rates when it cut on March 12, despite the threat United States tariffs pose to the economy. Royce Mendes, managing director and head of macro strategy at Desjardins Group, said the latest inflation report gives policymakers plenty of reason to 'temporarily' pause rate cuts as inflation appears to be on the march again. He said the number of items in Statistics Canada's CPI that rose by more than three per cent annually jumped to the highest level since May 2024. Furthermore, a core measure of services inflation that excludes shelter — an often-cited culprit for runaway inflation — also rose on a three-month annualized basis, to 3.5 per cent from 2.9 per cent in January. 'With price growth likely to accelerate in the months to come as a result of retaliatory tariffs and past currency depreciation, now seems like the right time for the Bank of Canada to take a hawkish detour, driving home the point that containing inflation remains the central bank's number one job,' Mendes said in a note. Tuesday's inflation report 'puts the (Bank of Canada) in a difficult place,' Leslie Preston, managing director and senior economist at Toronto-Dominion Bank, said in a note, citing the increase in the headline inflation number as well as the rising trend in core inflation. The dynamics are in place for that trend to continue, given that Canadians' expectations for inflation have risen, even as 'the hit to demand from uncertainty and the tariffs themselves' weighs on consumption, despite a 'highly uncertain' tariff landscape,' she said. TD is forecasting elevated tariffs over the next six months, after which they will be gradually reduced. 'In this world, we expect the Bank of Canada to provide some further cushion in the form of two more 25-basis-point rate cuts at its next two rate announcements,' Preston said. Markets have now 'slightly' cut the odds of another interest rate cut on April 16, 'but we will know a lot more about the path of tariffs by the time the decision rolls around,' she said. Headline inflation rose above two per cent for the first time since July 2024, economists Tony Stillo and Michael Davenport at Oxford Economics Group Ltd. said in a note, adding that while the GST/HST tax break muddied the CPI picture, 'there are signs that price growth has picked up.' A measure of CPI that controls for the GST/HST holiday jumped to 2.7 per cent year over year in March, and the three-month measure of core inflation minus food and energy has been climbing despite the temporary tax break, they said. Stillo and Davenport highlighted various moving parts in the inflation outlook, including an end to the consumer carbon tax on April 1. They estimate that will lower CPI by 0.5 per cent in April. March will also be the first full month post the GST/HST break, but inflation will also factor in retaliatory tariffs currently worth roughly $60 billion. 'Still, with headline CPI inflation now back above two per cent year over year and a U.S.-Canada trade war well underway, we expect the Bank of Canada will hold rates steady as it guards against upside risks to inflation from tariffs, supply chain issues, and rising inflation expectations,' they said. • Email: gmvsuhanic@
Yahoo
18-03-2025
- Business
- Yahoo
Canada's annual inflation rate leaps to 2.6 per cent, complicating the path for the BoC as tariff bite still looms
Canada's annual inflation rate jumped to 2.6 per cent in February, after inching up to 1.9 per cent in January, according to the latest data from Statistics Canada. On a monthly basis, the Consumer Price Index (CPI) rose 1.1 per cent in February, while on a seasonally adjusted monthly basis, the CPI rose 0.7 per cent. Although analysts had expected a rise in the February inflation figures due to the end of a temporary tax break on GST and HST on some goods, the rise in prices was steeper than projections. Statistics Canada's core measures of inflation, CPI-trim and CPI-median — which leave out tax impacts and which are closely watched by the Bank of Canada (BoC) — also rose in February. "Overall, the unexpected pickup in core measures isn't good news as this doesn't yet reflect the impact of tariffs, which will see headline CPI exceed 3 per cent year-over-year in the coming months," according to CIBC economist Katherine Judge in a note. Consensus ahead of today's announcement was for a 2.2 per cent increase in the annual rate of inflation, according to analysts surveyed by Reuters. The inflation figures "puts the BoC in a difficult place," TD Bank economist Leslie Preston said in a note about the data, writing that "Canadians' inflation expectations have risen" even as tariffs and related uncertainty are slowing demand. The complexity of the situation for the central bank is reflected in the market's expectations for the next rate announcement. Currency swaps put odds of a pause on interest rate cuts at 59 per cent, according to Reuters, while economists' forecasts are mixed. TD now expects the BoC "to provide some further cushion" with two more consecutive 25-basis-point cuts, Preston says, while noting that "how tariffs play out remains highly uncertain." Royce Mendes, economist at Desjardins Group, says the BoC should now "take a hawkish detour." "Given the tariff-related rise in inflation expectations and the recent momentum in actual price growth, it now seems likely that the Bank of Canada will pause its rate cutting cycle in April, at least temporarily," Mendes wrote. BMO's Benjamin Reitzes also expects a pause, though he points out that several "complicating" factors for the central bank. "Note that the coming end of the carbon tax will pull inflation down sharply in April, but March could see more upside as the rest of the tax holiday impact reverses," he writes. In a preview note, economists at RBC had predicted a 2.5 per cent increase, pointing to the end of prices "mechanically depressed" by the GST/HST break. In a report accompanying today's data, Statistics Canada says the end of the tax break "contributed notable upward pressure to prices for eligible products" — which it says represent around 10 per cent of items in the CPI basket. Slower price growth for gasoline versus January helped keep the headline inflation from rising higher, the report says. CPI-trim and CPI-median each jumped 2.9 per cent from a year ago, a faster rise than the 2.7 per cent seen in January. The CPI data come less than a week after the BoC cut its overnight rate a further 25 basis points. Economists noted a more hawkish tone from BoC governor Tiff Macklem around inflation, with the U.S.–Canada trade war expected to put upward pressure on prices even as it weakens the Canadian economy. A new OECD report models a 1.1-percentage-point spike in inflation in Canada in 2025 should a broad tariff and counter-tariff situation persist. John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf. Download the Yahoo Finance app, available for Apple and Android. Sign in to access your portfolio
