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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 …
20th May 2022
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 …
13th May 2022
The slump in home sales in April, combined with the unexpected fall in hours worked, point to downside risks to GDP last month. While hours worked are set to rebound in May, there is likely to be much more weakness to come for the housing market. Home …
6th May 2022
The CFIB Business Barometer remained very strong in April and seems to bode well for the short-term outlook, but signs of a sharp slowdown in the housing market suggest that higher interest rates may cause residential investment to fall faster than we …
29th April 2022
The surge in consumer price inflation in March leads us to think that the Bank of Canada will now rapidly raise its policy rate to 2.5% by the end of the year. The jump in inflation to 6.7% in March (see here ) seems to have been an even bigger surprise …
23rd April 2022
The Bank of Canada embraced a new-found hawkishness this week, hiking its policy rate by 50bp to 1.00% and announcing an almost immediate start to what amounts to a relatively more aggressive quantitative tightening than the Fed is contemplating south of …
14th April 2022
The government used its 2022 Budget to set out a host of proposals to make housing more affordable for Canadians, but the impact of these measures on house prices will be far overshadowed by the effect of rising interest rates, with the Bank of Canada …
8th April 2022
The strong activity data released this week raise the odds of the Bank of Canada hiking interest rates by a larger 50bp at its meeting later this month, particularly if the government loosens fiscal policy in its 2022 budget announcement next week. …
1st April 2022
Two weeks ago we outlined how the upgrade to our commodity price forecasts, following the start of the war in Ukraine, would cause GDP growth and inflation to be higher than we previously assumed, prompting the Bank of Canada to hike more aggressively. …
25th March 2022
If the prior record gain in house prices of 3.1% m/m in January wasn’t enough to concern policymakers, then the increase of 3.8% in February, as revealed by the MLS house price data this week, must have caught their attention. To put those moves in …
18th March 2022
The surprisingly strong rise in employment in February reduces the downside risks to near-term economic activity from higher energy prices and reinforces our view that the Bank of Canada will now hike more aggressively than we previously assumed. A …
11th March 2022
Governor Tiff Macklem’s speech on Thursday seemed much more hawkish than the policy statement that accompanied the Bank of Canada’s decision to raise interest rates by 25 bp this week. (See here .) Macklem said the evidence of broadening inflationary …
4th March 2022
For Canada, the main impact of the Russia-Ukraine crisis so far has been to push up the terms of trade to the most favourable on record. That could lead to the Bank of Canada becoming more hawkish than many of its peers, particularly as there has yet to …
25th February 2022
Communications from the Bank of Canada this week suggest that, as well as raising interest rates next month, the Bank will also begin quantitative tightening (QT). With inflationary pressures broadening in January and house prices rising at the fastest …
18th February 2022
One thing that stands out about the Bank of Canada’s forecasts is its optimism about prospects in 2023. While the Bank’s forecast for GDP growth of 4.0% this year is in line with the consensus, its forecast for a 3.5% gain in 2023 is 0.5%-points higher …
11th February 2022
The data releases this week suggest that the Omicron wave was more disruptive than we anticipated, but there are already positive signs that the economy will strongly rebound this month. Employment falls sharply in January The 200,000 slump in employment …
4th February 2022
Although the Bank of Canada kept policy unchanged this week, its signal that it intends to start quantitative tightening soon was more hawkish than most were expecting. In the press conference, Governor Tiff Macklem and the new Senior Deputy Governor, …
28th January 2022
Whether the Bank of Canada raises interest rates next week or not, the more important question now is how high will rates eventually rise? Our view is that current market pricing is too aggressive. The Bank’s quarterly business and consumer surveys, which …
21st January 2022
The various reports this week of intense labour shortages and the slump in the Ivey PMI in December suggest that the Omicron variant is causing widespread economic disruption. The Ivey all-economy PMI plunged by 16 points to 45.0 in December, its lowest …
14th January 2022
The Omicron wave will be characterised more by heightened absenteeism from work than previous waves. This raises the risk that the hit to activity will be larger than current restrictions alone might imply. Canada’s two most populous provinces, Ontario …
7th January 2022
The activity data released this week suggest that the economy was in a strong position in the fourth quarter and the price data imply that inflationary pressures are broadening. The surge in coronavirus infections, however, means there are growing …
17th December 2021
The Bank of Canada’s increased concerns about wage and cost pressures suggest it will start to tighten policy in April, especially if the government loosens fiscal policy in next week’s fall fiscal update. Bank to turn more hawkish in January In the …
10th December 2021
As the labour market is nearing a full recovery and wages are rising strongly, we now expect the Bank to hike interest rates in April, rather than waiting until July, as we previously expected. Fourth-quarter GDP growth not as strong as it looks …
3rd December 2021
Canada avoiding another winter wave Winter is coming but, unlike Europe and the US Midwest too, Canada hasn’t seen a new wave of coronavirus infections. By this time last year there were already signs of a rapid pick-up in the most-populated Canadian …
26th November 2021
The renewed surge in house prices could persuade the Bank of Canada to raise interest rates sooner than we forecast, although the hit to activity from the devasting floods in BC this week reduces the chance of the Bank becoming more hawkish any time soon. …
19th November 2021
The upside surprise to consumer price inflation in the US in October suggests there are also further upside risks in Canada, although the data next week are unlikely to show as large an increase in inflation. There is a positive correlation of 0.7 between …
12th November 2021
Supply shortages The Markit manufacturing PMI strengthened to an eight-month high of 57.7 in October, up from 57.0 the month before, with the new orders and employment sub-indices both rising slightly. But there were also signs that supply shortages are a …
5th November 2021
Following the Bank of Canada’s hawkish message this week there is a risk that it raises interest rates sooner than we anticipate. Nevertheless, we continue to doubt that the Bank will hike by as much in the coming years as market pricing now implies. The …
29th October 2021
The winding down of government support to households and firms means the economy faces a large fiscal contraction this quarter, which we think will cause GDP growth to disappoint. The three programs that expire tomorrow are the Canada Recovery Benefit …
22nd October 2021
We are not convinced that the further rise in oil prices this week will be sustained. Even if we are wrong, we doubt that higher oil prices will cause the Bank of Canada to become much more hawkish. The WTI oil price rose to more than $80 this week for …
15th October 2021
There have been rumours this week that the government will extend some of the emergency spending measures that are soon due to expire. They are unlikely to be extended in their current generous form, however, which suggests the economy faces a large …
8th October 2021
It’s hard to argue against the Canada Mortgage and Housing Corporation’s (CMHC) latest warning that house prices look vulnerable to a correction. Indeed, we expect prices to fall in several cities by 2023. The forecasters at CMHC spared the rest of our …
1st October 2021
The federal election confirms that the government will continue to play a larger role in the economy than before the pandemic, which is one reason to think that inflation will be higher in the coming years than in recent decades. The election itself was a …
24th September 2021
Whether the Liberals or Conservatives triumph on Monday, it seems likely that they will hold fewer seats than the current minority Liberal government. With the balance of power shifting toward the smaller parties, this could result in even looser fiscal …
17th September 2021
The speech by Governor Tiff Macklem this week suggests that, when the Bank of Canada next tapers its asset purchases, it may do so by less than is commonly assumed. Macklem starts talking about the end of QE The Bank kept policy unchanged at its meeting …
10th September 2021
The unexpected contraction in second-quarter GDP comes at a bad time for Prime Minister Justin Trudeau, with support for the ruling Liberal Party falling further this week and projections now pointing to a Conservative victory in the election this month. …
3rd September 2021
Housing has emerged as one of the key issues in the federal election campaign but, even if some of the latest proposals are implemented, we doubt that they would have much impact on house prices. Ahead of next month’s election, the Liberal Party has …
27th August 2021
Even if Prime Minister Justin Trudeau’s decision to trigger an election during the emerging fourth wave of the pandemic does not backfire, we doubt a majority win for the Liberals on September 20 th would materially affect the outlook for fiscal policy. …
20th August 2021
A new paper from the Bank of Canada outlines some additional economic benefits of a new monetary policy framework, which could be a sign that there is a greater chance of the Bank adopting average inflation targeting this year than we have assumed. Every …
13th August 2021
Housing market continues to cool There was more evidence that the housing market is cooling this week, with home sales slipping to 12-month lows in seasonally adjusted terms in both Toronto and Vancouver. (See Chart 1.) In Toronto, sales fell by a further …
6th August 2021
Although inflation remained above the Bank of Canada’s 1% to 3% target range in June, the details of the release seem to support the Bank’s view that the high rate of inflation is due to transitory factors. The consumer price index rose by just 0.1% m/m …
30th July 2021
As the recent decline in bond yields have been most pronounced at the long end of the curve, it is unlikely to trigger much of a renewed fall in five-year mortgages rates. We expect mortgage rates to increase in the coming years, which will contribute to …
23rd July 2021
The Bank of Canada expects GDP to move above its pre-pandemic trend in 2023 but, given the potential for oil prices and residential investment to decline, we think its forecasts will prove too optimistic. Alongside its decision to keep the policy rate …
16th July 2021
The local real estate board data suggest that home sales fell further in June but, with new listings declining as well, house prices look set to keep rising. The data released this week showed that home sales fell by another 9% m/m in Toronto in June, …
9th July 2021
The upward revision in March and smaller-than-expected fall in April mean that GDP is now on track to surpass its pre-pandemic level in July, a couple of months earlier than we previously thought. This raises the chance that the Bank of Canada will …
2nd July 2021
The dramatic fall in lumber prices over the past month has captured a lot of attention, but it is the more gradual rally in oil prices that is likely to have the greatest bearing on the economic outlook. That said, we are not convinced it will be …
25th June 2021
The introduction of new weights for the June CPI means that some of the item-specific price increases that we expect will not push up headline inflation by as much as we thought. Nevertheless, there still seems scope for inflation to rise to 4% over the …
18th June 2021
The communications from the Bank of Canada this week confirmed that it is not worried about inflation surpassing its forecasts for this year, and that it remains committed to keeping the policy rate unchanged until economic slack is fully absorbed. …
11th June 2021
The latest data suggest residential investment, which rose to more than 10% of GDP in the first quarter, has already peaked. With the Bank of Canada meeting next week, the key issue for policymakers is to what extent future declines could weigh on the …
4th June 2021
The re-opening plans set out in the last couple of weeks point to strong gains in GDP over the summer. Given supply constraints, we expect the increase in activity to result in higher inflation than most expect. Ontario, Quebec, British Columbia (BC) and …
28th May 2021