Canada CPI Preview: BoC in a hard position as disinflation stalls – Commerzbank
|Canada’s CPI inflation data is set to impact the timing of a Bank of Canada rate cut. Economists at Commerzbank analyze the BoC’s options as disinflation in Canada seems to have stalled.
No sign of disinflation anywhere in sight
Inflation is not falling any further. Whether today's figures for January will change this seems at least questionable. After all, most of the interest rate hikes should have been passed on to the real economy by now, which would mean that most of the disinflationary effect should have taken place. The economists surveyed by Bloomberg also expect a slight improvement at best.
This is not a particularly good outlook for the BoC. If inflation does not unexpectedly fall further in the coming months, it has only unpleasant options. Either it raises rates again (which is unlikely at this point and would increase the risk of recession), or it has to wait for the economy to slow down further, i.e. it has to go into recession with its eyes wide open to finally break the inflationary pressure. Alternatively, it could cut interest rates despite the developments, risking not only a consolidation of inflation but even a rebound, which would certainly not be helpful for the CAD. Let's hope that doesn't happen.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.