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- Canada CPI Preview: BoC in a hard position as disinflation stalls – Commerzbank
Canada CPI Preview: BoC in a hard position as disinflation stalls – Commerzbank
Canada’s CPI inflation data is set to impact the timing of a Bank of Canada rate cut. Economists at Commerzbank analyze the BoC’s options as disinflation in Canada seems to have stalled.
No sign of disinflation anywhere in sight
Inflation is not falling any further. Whether today's figures for January will change this seems at least questionable. After all, most of the interest rate hikes should have been passed on to the real economy by now, which would mean that most of the disinflationary effect should have taken place. The economists surveyed by Bloomberg also expect a slight improvement at best.
This is not a particularly good outlook for the BoC. If inflation does not unexpectedly fall further in the coming months, it has only unpleasant options. Either it raises rates again (which is unlikely at this point and would increase the risk of recession), or it has to wait for the economy to slow down further, i.e. it has to go into recession with its eyes wide open to finally break the inflationary pressure. Alternatively, it could cut interest rates despite the developments, risking not only a consolidation of inflation but even a rebound, which would certainly not be helpful for the CAD. Let's hope that doesn't happen.
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