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Apr Inflation Watch: Downward CPI Pressure Weighs Against Enduring Strength

BOC
  • BoC said April rate decision would focus on: evolution of excess demand, inflation expectations, wage growth, and corporate pricing power.
  • Headline CPI eased more than expected for a second time in a row in Feb at 2.8% YOY and is tracking below the Bank's estimate for 3.2% in Q1. The BoC's preferred core measures are also the lowest in 2 years.
  • TD, CIBC, and Desjardins have called for the Bank to consider alternate measures of inflation such as CPIX. CPIX, the Bank's former preferred core figure, strips out volatile components like shelter and is running at 2.1% YOY.
  • Macklem says economy has moved into modest excess supply. GDP is currently running ahead of the Bank's forecast for 0.5% annualized in Q1; JP Morgan updated their forecast to 2% while CIBC says Q1 growth is tracking at 3.5%.
  • Consumer inflation expectations remain elevated as Q1 expectations for 1Y ahead were little changed from the previous quarter at 4.9%.
  • Business inflation expectations moderated slightly as the proportion of firms expecting inflation to be over 3% over the next 2Y are at the lowest levels since Q2 2021 at 40%.
  • Unemployment ticked up to 5.8% in Feb but wage gains are still running at 5% YOY. Consumer wage growth expectations are at a high in BOC survey of 2.8% while businesses plan for 4.1% raises.
  • Corporate pricing behavior is normalizing as the share of firms planning unusually large or frequent price increases is declining steadily. The Bank noted that slow moderation in wage growth and pass-through of high costs are keeping output price growth elevated.
  • Global oil prices have risen faster than the BoC expected in the Jan MPR. Prices recently spiked as a result of escalation in the Middle East and ongoing impact assessments of Ukrainian drone strikes on Russian refineries.
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