Core inflation still rising

With core CPI inflation still rising, the Bank of Canada has no choice but to continue hiking its policy rate “forcefully’ back toward neutral. All three of the core measures tracked by the Bank are now above the 3% ceiling of the target range. The average of those three measures hit 4.2% in April and the survey evidence suggests it will continue to rise toward 5% soon. But GDP growth still looks solid over the first half of this year, although the slump in home sales will weigh on residential investment and the recent run of disappointing retail sales reports suggests that consumption growth was not quite as strong as we were hoping for, even allowing from a rotation back to spending on services. Under those circumstances, the Bank of Canada will feel pressured to keep raising its policy rate by 50bp at the next two meetings, to get it quickly back into the 2% to 3% neutral range.