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Scotia: CPI Tentatively Favours A Skip

CANADA
  • Scotia note that Canadian inflationary pressures sharply ebbed at the margin and this gives the BoC a little more breathing room to potentially spread out possible further tightening.
  • They would personally hike in July given continued upside risk to trend inflation, but the BoC’s emphasis upon intermeeting data dependence and historical lessons on the fine tuning stages make them doubtful at this point of a back-to-back hike.
  • Scotia still call for a 25bps hike in Q3 but had positioned the call over July versus September as being highly data dependent. At the margin, this data tentatively leans against July.
  • There is clear precedence for BoC policy adjustments not having to go in a straight line with back-to-back steps (e.g. skipping a hike in Sep’18 or skipping a cut in Mar’15).
  • They still want to see the full suite of data before the July decision, including Friday’s BoC surveys plus April and May GDP estimates and then the following Friday’s jobs and wages, but at this stage even post-CPI pricing for a July hike seems high.
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