The Bank of Canada’s preferred core inflation measures have trended higher and are close to the 2% inflation target. Despite the drop in headline inflation in January, the core inflation data will reinforce market expectations of yet more interest rate hikes this year. We expect one more rate increase, most likely at the April policy meeting. Looking further ahead, we still expect the pace of economic growth to slow significantly due to unintended consequences of tighter housing policies and credit conditions. If we are correct, then the Bank would have no other choice but to reverse course and cut interest rates.
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