December's inflation data is a glass half-full sort of print: Panel discussion
Canadian inflation slowed in December and experts think this could support a final policy rate hike by the Bank of Canada next week, before pausing its aggressive interest rate strategy.
On Tuesday, Statistics Canada reported the consumer price index (CPI) rose 6.3 per cent on a year-over-year basis in December. This was slower than the 6.4 per cent gain that economists had anticipated.
Randall Bartlett, senior director of Canadian economics at Desjardins Group, said he thinks this report won’t have a dramatic impact on the Bank of Canada’s rate decision on Jan. 25.
“I don't think it changes anything in terms of our call and market positioning for the Bank of Canada's rate decision…the Bank of Canada still has a long way to go to get inflation back down to its 2.0 per cent target.” Bartlett said in an interview on Tuesday.
He added that he expects the Canadian central bank will increase its key policy rate by 25 basis points (bps) and his opinion hasn’t changed after the latest CPI data.
Five out of the eight major components of the Consumer Price Index rose at a slower pace on a month-over-month basis in December.
Karyne Charbonneau, executive director of economics at CIBC Capital Markets, said that without including the increase in mortgage interest costs, the inflation data looks more optimistic.
“While core inflation remains too high, when excluding the increase in mortgage interest costs, which reflect the rapidly rising interest rates, things look better with a monthly gain of about 0.2 per cent,” Charbonneau said in a note to clients on Tuesday.
“Overall, this report is largely as anticipated and we therefore continue to expect the Bank of Canada to raise rates by 25 bps next week before pausing for the rest of the year.”
The Canadian central bank has hiked its key policy rate seven consecutive times since its March 2, 2022 meeting.
Bartlett said he thinks the Bank of Canada is approaching the point where it will finally take a step back and observe how its aggressive interest rate strategy has affected inflation.
“We think the Bank of Canada at that point (after another rate hike) is going to take a bit of a pause, step back, survey the impacts (of its rate strategy) on the economy; it takes, you know, six- to- nine quarters for interest rate hikes to be fully felt in the economy, so we think that they're going to stay back and measure that,” he explained.
“We expect a recession later in the first half of 2023 and into the end of the year. So certainly, there's a lot of impact left to be felt on the Canadian economy from rate hikes.”