CPI data virtually guarantees 50 bps BOC hike – CIBC

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Like everywhere else, Canadian CPI data was hot today. The numbers point to a fearsome inflation problem for global central banks.

In analyzing the report and the 6.8% y/y rise compared to 6.7% expected, CIBC points to a 1.1% m/m rise in food prices (8.5% y/y)

However it wasn’t just food as core inflation was also well-above expectations. A driver for that was owned accomodation, which is really a proxy for mortgage costs, something that will continue to rise.

In better signs they note that real estate agent fees should soon drop on slower home transactions and that goods prices outside of food and energy are showing signs of stability.

“Goods prices excluding food and energy rose by a more modest
0.3% in April, following some outsized gains in the prior three months, which could be a sign of some supply chain
issues and delays following bridge blockades were starting to fade,” they write.

Economists at CIBC aren’t yet ready to change their call on the path of BOC rates.

“Some like it hot, but not the Bank of Canada when it comes to inflation. The fact that inflation
is pushing further above the Bank’s MPR forecasts virtually guarantees another 50bp hike at its next meeting, and it could
well follow that up with another outsized move to get the overnight rate to the bottom end of its neutral range (2-3%)
quickly. However, after that, signs of a slowing in the domestic economy and home-grown inflationary pressures should
slow down the pace of rate hikes, and we still suspect that the Bank won’t have to take rates above 2.5% in order to slow
growth enough to bring inflation down to its 2% target in 2023.”