This week, central bankers made headlines, but it was Canadian economic data that caught everyone’s attention. February saw a notable improvement in inflation, while retail sales showed weakness, raising expectations for an earlier rate cut by the Bank of Canada (BoC).
The BoC’s March deliberations confirmed their readiness to lower rates later in the year, although the exact timing remains uncertain.
Market sentiment is leaning towards a rate cut around June/July, aligning with expectations for other major central banks.
Inflation data revealed a significant slowdown, with the headline measure staying within the BoC’s target band of 1% to 3%. However, the standout was the substantial discounts seen in items like clothing, cell phone/internet plans, and food. Notably, food prices experienced their first decline in three years (seasonally adjusted), which Deputy Governor Toni Gravelle praised as “very encouraging” in a later speech.
More encouragingly, the BoC’s preferred inflation indicators showed progress. Despite stubbornly high figures in recent months, these metrics have started to ease, hovering just above the 3% band. They are now aligning with other inflation measures, including the Bank’s previous preferred measure, CPIX, which excludes the most volatile items like mortgage interest costs. Notably, CPIX has now hit the BoC’s 2% target.
Source: TD Economics https://economics.td.com/ca-weekly-bottom-line
