HomeContributorsFundamental AnalysisOn-Target Inflation Means Less Pressure on BoC

On-Target Inflation Means Less Pressure on BoC

  • Headline inflation was stronger than expected, rising to 2.4% in May
  • BoC core measures averaged 2.1% (had been 1.9-2.0% for past 15 months)
  • Most major components—particularly food and transportation—showed a pickup in y/y inflation

Today’s stronger-than-expected inflation data will still be overshadowed by this afternoon’s Fed meeting. The US central bank is under increasing pressure from the president and financial markets to lower interest rates over the second half of this year. That’s not the case north of the border, where markets are pricing in much less easing from the BoC (now less than 50% odds of a cut by end of year) than from the Fed (~50 bps of cuts by October). Inflation numbers like today’s—with core measures creeping higher in May but remaining around the 2% target—are one reason the BoC faces less pressure to reverse course and begin easing monetary policy. Granted, the BoC is subject to the same global forces as the Fed, and a further increase in trade tensions would raise the likelihood of both central banks lowering interest rates. But for now, stable to slightly higher inflation readings and generally improving domestic data allow the BoC to remain patient and monitor the impact of external developments.

RBC Financial Group
RBC Financial Grouphttp://www.rbc.com/
The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.

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