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BMO: Wage-Price Spiral Worry Potentially Behind Super-Sized Hike

CANADA
  • Inflation was the major theme in the statement with inflation around 8% Y/Y in the next few months and domestic price pressures from excess demand becoming more prominent.
  • In the projections, 22Q4 inflation was notably raised 3ppts to 7.5% while 23Q4 is now 3.2% from 2.4%.
  • The discussion of the domestic economy was generally upbeat, with excess demand building further, but GDP growth forecasts were cut across the board.
  • Box 3 in the MPR on a wage-price spiral scenario is the type of worry likely a big driver behind today’s super-sized hike.
  • BMO still look for a 50bp hike in September but recognize another larger increase could be on the cards, seeing policy rates peaking at 3.5% by year-end.
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