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Canada Economics Weekly

Canada Economics Weekly

Economy losing momentum

While the apparent contraction in GDP in May appears to have been partly due to temporary factors, it also reflects the impact of the surge in interest rates on housing. With the business surveys for June also showing a loss of broader momentum, the economy may be slowing even sooner than we anticipated.

We are sending the Weekly early this week as our Toronto office is closed for the Canada Day holiday on Friday. Happy Canada Day!

30 June 2022

Canada Economics Weekly

Further rise in inflation cements 75 bp hike

The May CPI data showed that inflationary pressures remain acute across the economy, which reinforces our view that despite growing concerns about the housing market, the Bank of Canada will become a member of the “75bp club” in July.

24 June 2022

Canada Economics Weekly

New CPI weights to push inflation above 8%

The new CPI weights outlined this week mean that inflation will peak at more than 8% in June, which is higher than we previously expected. That further raises the chance of the Bank of Canada following the Federal Reserve with a 75 bp interest rate hike, despite the sharp fall in home sales in May. Markets Drop-In (22nd June, 10:00 ET/15:00 BST): Join our Markets team for this special briefing on the outlook for equities, bonds and FX and a discussion about revisions to our forecasts. Register now

17 June 2022
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Canada Economics Weekly

From one policy mistake to another?

Governor Tiff Macklem’s hawkish comments this week, even as he presented a report warning of the risks of aggressive policy tightening, leave little doubt that the Bank of Canada is singularly focused on making up for keeping policy too loose for too long. But by lurching from one extreme to another, the Bank risks making an even more damaging policy mistake in the other direction.

Canada Economics Weekly

50, 75…100 bp?

Following its second 50 bp policy rate hike, the Bank of Canada hinted that it will consider an even larger move next month. With CPI inflation heading to 7.5% this month due to the renewed surge in gasoline prices, there is a clear chance of a larger move, particularly if there is also a jump in long-run inflation expectations in the forthcoming consumer and business surveys.

Canada Economics Weekly

Bank to continue with 50bp rate hikes

With core inflation rising well above the ceiling of the 1% to 3% target range and first-quarter GDP growth likely to have been as strong as 5.0% annualised, there is little to stop the Bank of Canada from hiking its policy rate by another 50bp this week, to 1.50%.

Canada Economics Weekly

Core inflation still rising, as housing slumps

The Bank of Canada will have eyed this week’s data releases and market moves with some trepidation. The further acceleration in core CPI inflation in April means the Bank is all but guaranteed to push ahead with another 50bp interest rate hike at its upcoming policy meeting, particularly with gasoline prices spiking even higher this month. But the reported slump in home sales (and prices) and the sell-off in global equity markets, are warnings that overly aggressive monetary tightening by the Bank of Canada (and other central banks) could backfire, plunging the global economy into recession.

Canada Economics Weekly

Gasoline price jump to drive CPI inflation above 7%

The unexpected further jump in gasoline prices, reflecting a sharp widening of refiners’ margins, means we now expect headline CPI inflation to rise above 7% in May. While the rise in refiners’ margins presents an upside risk to our inflation forecasts over the rest of 2022, we expect this to be largely offset by the impact of a fall in house prices on shelter inflation.

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