Posted on May 18, 2023

Craggy path ahead towards the BoC’s 2% inflation target: economist

The Canadian inflation rate accelerated for the first time in nearly a year

The slight upward movement in the latest Canadian inflation numbers is an indication that the road to the central bank’s 2% target will be a “bumpy” one, according to economist Sherry Cooper (pictured).

Fresh numbers from Statistics Canada showed an uptick in the consumer price index from 4.3% in March to 4.4% in April. This represented the first time that the figure went up on a monthly basis since last June, back when inflation was at a 39-year peak of 8.1%.

“The initial reduction in inflation was swift and relatively straightforward, but predictably, the following phase is proving to be considerably more challenging,” Cooper said in a new analysis.

“This sketches an unusual scenario for the Bank of Canada as it approaches its June 7 rate decision. The economy remains resilient, with Canadians grappling with escalated interest rates and continued price pressures. Spring 2023 increasingly looks like the turnaround point for Canada’s housing market after a year-long slump, and labour markets remained firm in April.”

The BoC has projected the overall inflation rate to settle at around 3% by mid-2023, although actual relief at the 2% target rate is not likely to manifest until at least next year.

Taken together, these trends will make the BoC confident in its current strategy, Cooper said. The central bank’s policy rate is currently frozen at 4.5%.

“The [BoC] will be content that their measures of core inflation continue to trend downward,” Cooper said. “The bank will likely continue the pause in June, but if the May employment numbers continue strong, the Governing Council will indeed warn that they will remain ever vigilant. I do not expect rate cuts this year.”