Shortly, Bank of Canada deputy Paul Beaudry speaks today British Columbia with the latest Economic Progress Report. These speeches are scheduled on the day after BOC decisions where there aren’t press conferences and give policymakers an opportunity to correct or guide market reactions following statements but Beaudry didn’t offer any clear guidance today, nor did yesterday’s statement. The market is pricing in a 64% chance of a further hike in July.
- There appears to be more momentum in demand than we expected
- BOC was surprised by Q1 consumption growth, especially strong goods spending
- Strong household spending and concerning April inflation led to rate hike decision
- Details behind April headline inflation were concerning
- Three-month measures of core inflation seem to have lost momentum
- Still expects headline inflation to be near 3% in summer but that is largely due to base year and energy effects
- We agreed that total inflation could get stuck well above 2%
- It is more likely that long-term rates will remain elevated than the opposite
- There is a meaningful risk that neutral level of rates could go up
He is certainly not pushing back on the idea of further rate hikes but there has been no reaction from USD/CAD.
I think that’s ultimately going to prove to be a mistake as lagged effects of hiking start to hit hard.