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Rise in manufacturing sales entirely due to higher prices The rise in manufacturing sales in March was entirely due to higher commodity prices, but the orders data and the business surveys suggest that sales volumes will do better in the coming months. …
16th 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
We expect higher interest rates to cause a 10% fall in house prices over the next 12 months and an even steeper fall in residential investment. With the rest of the economy still recovering from the pandemic and benefitting from higher commodity prices, …
9th 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
Sharp slowdown in employment growth partly due to temporary factors The sharp slowdown in employment growth and large decline in hours worked in April present downside risks to GDP growth but, as temporary factors seem to explain much of the weakness, …
The steep declines in home sales across Canada’s major cities reinforces our view that a downturn in residential investment will prevent the Bank of Canada from raising interest rates by as much as markets are now pricing in, particularly if – as looks …
4th May 2022
Goods trade surplus to widen this quarter The trade surplus unexpectedly fell in March, despite the surge in commodity prices, but it is likely to rise in the second quarter, as export volumes recover while import volumes drop back. The goods trade …
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
Economy surges as Omicron wave fades The jump in GDP in February means that, despite the Omicron wave, the economy was even stronger than expected in the first quarter. But signs of a sharp slowdown in the housing market in April suggest there are …
The further fall in the unemployment rate in March, to a multi-decade low of 5.3%, raises the risk that a sharp acceleration in wage growth will exacerbate inflationary pressures, at a time when consumer price inflation is already approaching 7%. Business …
27th 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
Retail sales understate the pick-up in overall spending Retail sales were basically unchanged in February, but this understates the strength of total spending following the lifting of the Omicron wave restrictions on high-contact services. As consumer …
22nd April 2022
Overview – Economic activity should expand at a strong pace this year but, with the Bank of Canada set to tighten policy rapidly, we expect the quarterly pace of GDP growth to slow below potential in 2023, as residential investment falls from its elevated …
21st April 2022
Further surge in inflation a big surprise for the Bank The surge in inflation in March was much larger than the Bank of Canada expected and suggests it will follow its 50 bp interest rate hike last week with another similar-sized move at its next meeting …
20th 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
Producers ramped up despite protest blockades The 4.2% m/m rebound in manufacturing sales in February was much better than we were expecting, as firms continued to boost production even though the blockade at the key Ambassador Bridge border crossing …
The Bank moved into full-blown hawkish mode today, hiking its overnight policy rate by 50bp to 1.00% and announcing that quantitative tightening will start later this month, with no caps on the value of maturing bond principal allowed to roll off each …
13th 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
Unemployment rate falls to lowest since the 1970s Another solid rise in employment drove the unemployment rate down to a 48-year low of just 5.3% in March, but the still-muted pace of wage growth suggests the Bank of Canada may not need to tighten policy …
The government announced a smorgasbord of new policies in the 2022 Budget, but the total increase in the budget deficit, at just $7bn, was arguably far lower than some feared. Moreover, as most of the funds are being allocated to new investments, rather …
7th April 2022
GDP growth and inflation continue to outperform Bank’s forecasts Bank set to accompany 50 bp hike with start of quantitative tightening We now expect the policy rate to reach 2.0% by the fourth quarter We now anticipate that the Bank of Canada will raise …
6th April 2022
Goods trade surplus to widen again soon The goods trade surplus unexpectedly narrowed in February but, with commodity prices rising strongly since then and some of the jump in imports set to be reversed, it will rebound in March. The goods trade surplus …
5th April 2022
Long-run inflation expectations remain well-anchored The Bank of Canada’s latest quarterly surveys suggest that firms’ and consumers’ long-run inflation expectations remain well anchored, which the Bank could use to justify a slower tightening cycle than …
4th 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
Solid January followed by strong February Following the moderate gain in GDP in January, the preliminary estimate of a further 0.8% m/m surge in activity in February will fuel speculation that the Bank of Canada will hike its policy rate by a bigger 50bp …
31st March 2022
The government looks set to use its 2022 budget next week to outline a further increase in spending. While this will be modest in the context of the stimulus provided during the pandemic, it comes at a time when the economy is already operating at …
29th March 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
The surge in interest rate expectations is a key risk to housing. We recently set out how, due to the much larger share of variable rate mortgages than before the pandemic, the Bank of Canada would need to raise its policy rate to 2.5% to achieve the same …
23rd 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
Strong start to 2022 Retail sales made a strong start to 2022 and, while the hit to household purchasing power from higher gasoline prices is a headwind to further growth in sales volumes, the fact that consumer confidence has held up well supports our …
The rise in mortgage rates implied by our new higher policy rate forecasts would reduce affordability by 12% over the next year which, in isolation, is not especially alarming when considering that the home sales-to-new listing ratio is still pointing to …
17th March 2022
Inflation likely to hit 6.0% in March While the price increases in February were not as broad-based as in January, they nevertheless caused all three of the Bank of Canada’s core inflation measures to rise further and suggest that, even if oil prices were …
16th March 2022
Manufacturing sales volumes probably rebounded in February The sharp fall in manufacturing sales volumes in January was at least in part due to the impact of staff absenteeism amid the Omicron outbreak and, with hours worked across the sector increasing …
15th 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
Surge in employment pushes unemployment rate below pre-pandemic level The labour market boom resumed in February and the odds of a sharp acceleration in wage growth are rising, which would add to the pressure for the Bank of Canada to continue raising …
The surge in commodity prices means that, after ending last year in deficit, the current account is set to move into a surplus of around 1.5% of GDP in the first half of this year. The fourth-quarter current account data, released last week, revealed a …
10th March 2022
Surging commodity prices have led us to substantially increase our forecasts for consumer price inflation, but the negative impact of higher prices on household purchasing power, and therefore real consumption, should be more than offset by stronger …
9th March 2022
Goods trade headed for even bigger surplus The goods trade balance moved back to a surplus of more than $2bn in January and, based on the recent broad gains in commodity prices, it is likely to hit close to $5bn this month. If that were sustained, it …
8th 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
Higher commodity prices and stronger immigration from Ukraine are potential benefits for Canada’s economy from the war in Ukraine, but there is a risk that near-term real GDP growth disappoints due to higher inflation. Canada’s trade links with Russia and …
2nd March 2022
The Bank of Canada’s decision to raise interest rates by 25bp today was widely expected and the statement supports our view that it will follow up with another hike next month, but there was little indication that the Bank intends to start quantitative …
GDP growth continues to surpass expectations GDP rose by more than expected in the fourth quarter and the preliminary estimate suggests that, despite the Omicron outbreak, GDP rose further in January. This continued strength supports our view that the …
1st 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
Bank sent heavy hint that March rate hike was likely Set to accompany 25 bp hike with start of quantitative tightening With inflationary pressures broadening, Bank to follow with another hike in April We expect the Bank of Canada to kick off its …
23rd February 2022
The evidence of broadening inflationary pressures and the further rise in oil prices suggest that the balance of risks to our inflation forecast lies to the upside. The January consumer price data showed a surprisingly large rise in headline inflation, to …
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
Weak December, but strong start to 2022 Retail sales fell in December as the Omicron wave took hold but, rather oddly, the preliminary estimate suggests that decline was more than revered in January, even as coronavirus restrictions were reimposed. The …
Business investment has been much weaker in Canada than the US since the pandemic, which helps to explain why productivity growth has lagged. There are reasons to be optimistic about the next couple of years, but we are doubtful of the Bank of Canada’s …
16th February 2022
Peak in inflation yet to come Consumer price inflation rose by more than expected at the start of 2022 and the breakdown suggests that inflationary pressures are broadening, which adds to the pressure for the Bank of Canada to begin tightening policy next …
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
