Canada: Upside surprise in inflation is likely to bring another non-standard 50bp hike – CIBC

Data released on Wednesday showed a larger than expected increase in inflation during March in Canada. According to analysts at CIBC, the upside surprise in inflation will likely be followed by another 50 bp rate hike from the Bank of Canada at the next monetary policy meeting. 

Key Quotes: 

“Inflation surged beyond everyone's expectations in March, including crucially the Bank of Canada's recent Monetary Policy Report (MPR) estimates. The 1.4% increase on the month, and annual rate of 6.7%, were well in advance of the consensus forecast (1.0% m/m, 6.1% y/y), and meant the average for Q1 was two ticks higher than the Bank's MPR projections. That will likely mean interest rates rise by another 50bp at the next policy meeting.”

“Inflation continues to run well ahead of expectations from earlier in the year, linked not just to commodity price spikes but also to stronger underlying price pressures as well. The upside surprise is likely to bring another non-standard 50bp hike from the Bank of Canada at it's next meeting. While March should represent the peak in inflation due to the slight pullback in energy prices from their highest point, any easing in the next few months will likely be fairly gradual due to continued supply disruptions emanating from the war in Ukraine and lockdown measures in China. A more meaningful deceleration in inflationary pressure will likely wait until the second half of this year and into 2023.”