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Local Analysts: CPI Makes BoC A Tougher Call

CANADA
  • BMO: This is not a good report for the BoC. While the Bank had anticipated a back-up in headline inflation in their latest forecast, July's result is already at their call for all of Q3 (3.3%), and the August reading is almost certainly set to be even higher. The modest slowing in core CPI is a thin silver lining in an otherwise strong CPI report. We still believe that with the recent upswing in the u/e rate and clear signs of cooler spending that the BoC would prefer to move to the sidelines in September and give prior hikes time to work, but the inflation figures will make it a tougher call.
  • CIBC: The upside surprise in July inflation wasn't entirely attributable to higher energy prices and food prices, as core categories outside of mortgage interest costs also accelerated, and headline inflation is likely to increase further in August as base effects remain unfavorable. While we would argue for more patience, the BoC is likely on track for a final 25bp hike in September. But we expect the rise in the u/e rate to continue ahead and prevent any further tightening thereafter, and we continue to view the Bank as overshooting and we therefore expect inflation to fall below the 2% target as early as the 2H24.
  • RBC: Easing in BoC’s ‘core’ CPI measures in July is welcome after months of sticky prints at higher levels but is far from enough to signal that this period of above-normal inflation is at an end. Inflation pressures are proving more persistent but we look for a softening economy to ease inflation pressures further going forward, and expect the odds are still tilted towards the BoC foregoing another hike in September.
  • TD: The BoC's median and trim inflation measures continued to make progress in July, but at a glacial pace. Underlying inflation remains a long way from the 2% goal. Domestic demand continues to hum along, and as a result we expect progress on inflation to remain disappointing through the remainder of the year. This is pushing up expectations that the BoC may pursue another rate hike in the fall months as it gathers more information on the jobs market and overall inflation. We will hear more on the Bank's thinking when the deliberations from the July decision are released on Wednesday.
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