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Scotia: No Clear Signs That Inflation Is Decelerating

CANADA
  • Scotiabank note April CPI inflation saw the fourth consecutive upward surprise for the % M/M and they just don’t see any clear signs that inflation is decelerating.
  • The average of the three central tendency measures accelerated from 3.9% to 4.2% Y/Y, the highest since Apr’90, and alternative core measures were also very hot e.g. core ex food & energy a record 6.9% annualized in 3mma terms.
  • The BoC forecast Q1 headline inflation at 5.6% Y/Y and Q2 at 5.8% Y/Y. Q1 landed at 5.8% Y/Y and Q2 is so far tracking 6.8% based solely upon April’s reading, requiring prices fully stalling out in May and June in M/M terms.
  • Scotia pencil in three 50bps hikes in Jun, Jul and Sep followed by 25bp hikes in the final two meetings of the year but don’t want the BoC to rule out a larger hike in June. That would take the overnight rate to 3% to the top end of the BoC’s estimated 2–3% neutral rate range or a mild overshoot of the mid-point.
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