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CPI inflation has finally peaked but this will not be enough to prevent further large interest rate hikes from the Bank of Canada, especially as there is little evidence yet that the weakening housing market is weighing on construction. Some positive …
22nd July 2022
Slump in confidence points to sales weakness ahead Retail sales rose by a bit more than we anticipated in May, but the preliminary estimate implies that most of the gain in sales volumes was reversed in June and the slump in consumer confidence suggests …
Overview – The Bank’s aggressive policy tightening will weigh heavily on domestic demand, with consumption growth set to slow sharply while residential investment plunges back to pre-pandemic levels. There is scope for the economy to avoid recession if …
20th July 2022
Some encouraging signs despite further rise Despite the further rise in inflation to a multi-decade high, the June data showed some encouraging signs, with the monthly price gains slowing across almost every category. Inflation will begin to fall in the …
Housing woes not yet weighing on construction The further decline in home sales in June and the record monthly fall in house prices did little to affect construction activity, with housing starts once again outperforming expectations last month. As there …
19th July 2022
The Bank of Canada justified its 100 bp interest rate hike on the basis that front-loading hikes has historically raised the chance of a “soft landing”. With the pace of house price declines already gathering pace ahead of that move, however, we are not …
15th July 2022
Manufacturing continues to struggle Manufacturing sales volumes plunged in May amid renewed semiconductor shortages, but there is scope for a more sustained rebound over the second half of this year, despite the worsening global backdrop. The 2.0% m/m …
14th July 2022
The Bank of Canada’s 100 bp hike today and its accompanying communications have led us to upgrade our forecast for the policy rate to 3.5% by the October policy meeting, from 3.0%. As the commodity price and global supply chain assumptions underpinning …
13th July 2022
The falls in commodity prices this week point to some relief ahead for CPI inflation, but the Bank of Canada will be more focused on the rises in long-run inflation expectations and wage growth in the latest data, prompting a larger 75 bp interest rate …
8th July 2022
Surprise fall in employment a seasonal distortion The surprise fall in employment in June appears to reflect seasonal effects and, with wage growth surging to 5.2% y/y, the Bank of Canada will follow through next week on its hint of a larger 75 bp rate …
Healthy trade surplus to be maintained over second half of 2022 The recent falls in commodity prices mean that, after soaring in May and probably improving again in June, the trade surplus will decline in the coming months. Nonetheless, as we expect …
7th July 2022
Jump in inflation expectations points to larger 75 bp hike Bank to reiterate need for policy rate to move to a restrictive setting We expect rate to peak at 3.0% in October and now anticipate rate cuts in 2023 The recent acceleration in wage growth and …
6th July 2022
Rise in long-run inflation expectations bolsters case for larger 75 bp hike The increase in long-run inflation expectations in the Bank of Canada’s latest business and consumer surveys further raises the probability of the Bank enacting a larger 75 bp …
4th July 2022
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 …
30th June 2022
Shock contraction in GDP in May partly due to temporary factors The preliminary estimate suggests that the healthy 0.3% m/m rise in GDP in April was followed by a shock 0.2% contraction in May but, as this appears to have been partly due to temporary …
The tight labour market is putting upward pressure on wages, with the Labour Force Survey showing a strong 1.0% m/m rise in average hourly earnings in May. While the annual rate of wage growth, at 3.9% y/y, remained lower than before the pandemic, base …
29th June 2022
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. Inflation now the …
24th June 2022
Peak in inflation yet to come The jump in CPI inflation to 7.7% in May all but guarantees that the Bank of Canada will raise interest rates by a larger 75 bp next month, particularly with inflation on track to accelerate to over 8% in June. The rise in …
22nd June 2022
Strong April, but tougher times ahead The strong rise in retail sales volumes in April reinforces our view that overall consumption growth will accelerate sharply this quarter but, with consumer confidence plunging in June and the housing market rapidly …
21st June 2022
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 …
17th June 2022
The Bank of Canada’s hawkishness, a widening of mortgage spreads, and news that at least one lender is restricting new loan applications suggest the outlook for house prices is worse than we previously feared. Lenders tripped over themselves to provide …
16th June 2022
Revisions leave manufacturing sector looking better than expected The 0.9% m/m rise in April, combined with a large upward revision to March, means that manufacturing sales volumes have finally risen above their pre-pandemic peak. While the recovery in …
14th June 2022
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 …
10th June 2022
Rapidly accelerating wage growth makes 75bp hike more likely The 39,800 rise in employment in May drove down the unemployment rate to a multi-decade low and there are now clear signs of the tight labour market pushing up wages. That raises the chance of …
The Bank of Canada’s recent communications suggest that it will be unfazed by the second consecutive double-digit drop in home sales in May. This raises the chance of the Bank enacting a larger interest rate hike at its meeting in July and leaves us …
7th June 2022
Goods trade surplus to widen before long Elevated commodity prices were still doing little to lift the goods trade surplus at the start of the second quarter, but we expect it to widen in the coming months as goods imports from Asia drop back and energy …
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 surge in gasoline prices, there is a clear chance of a larger move, …
3rd June 2022
The Bank of Canada hiked its policy rate by another 50bp, to 1.5%, today and, after warning that "the risk of elevated inflation becoming entrenched has risen", closed the accompanying statement with an ominous hint that a 75bp hike was now on the table …
1st June 2022
Q1 growth weaker, but strong momentum going into Q2 First-quarter GDP growth slowed to 3.1% annualised, from 6.6%, as the Omicron-related restrictions had more of an impact than previously thought. But the 0.7% m/m increase in monthly GDP in March …
31st May 2022
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, …
27th May 2022
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. (See Chart …
26th May 2022
Sales hit by supply-related slump in autos Retail sales values were unchanged month-to-month in March, as a further supply-related slump in motor vehicle sales offset a largely price-related surge in gasoline station sales and solid increases in other …
Further upside surprise in core inflation points to another 50bp hike Housing slump begins, but won’t stop march back to neutral We expect slower pace of tightening in H2, with policy rate peaking at 2.5% We expect the Bank of Canada to hike its policy …
25th May 2022
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
Inflation edges even higher as food prices surge CPI inflation edged up to a new cyclical high of 6.8% in April, from 6.7%, and, together with the more marked increases in core inflation, that almost guarantees the Bank of Canada will hike its policy rate …
18th May 2022
The 10% fall in house prices that we expect over the next 12 months will also help to pull down CPI inflation, via its impact on shelter costs. Admittedly, shelter inflation is unlikely to decline meaningfully until 2023, because of soaring mortgage …
16th May 2022
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. …
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
