This is a great chart from Dominique Lapointe at Manulife. He highlights that Canadian February CPI excluding mortgage interest costs was at 2.06% y/y
It’s “clearly the kind of sustained progress the BoC needs to see to ease its policy rate,” he said.
The Bank of Canada argues that without higher mortgage interest costs, consumers would be spending money elsewhere and fuelling inflation. There’s truth to that but there is also a lag in monetary policy and even if the BOC were to cut rates by 100bps today, there would still be a drag from consumers renewing mortgages at higher rates.
That all argues for moving sooner rather than later, and for CAD weakness. There was a drop in the loonie on the initial data but it’s recovered the move on higher oil prices, better risk appetite and general USD selling.