Canada's CPI inflation data is set to influence the timing of a Bank of Canada rate cut. Economists at Commerzbank analyze BoC options as disinflation appears to have stalled in Canada.
No sign of disinflation anywhere in sight
Inflation is not falling further. Whether today's numbers will change that for January is questionable, to say the least. After all, most of the increase in interest rates should have already been transferred to the real economy, which would mean that most of the disinflationary effects should have occurred. Economists polled by Bloomberg also expect a modest improvement at best.
This is not a very good outlook for the BoC. If inflation does not unexpectedly fall further in the coming months, it has only unpleasant possibilities. Either they raise rates again (which is unlikely at this point and would increase the risk of a recession), or they have to wait for the economy to slow down further, i.e. they have to go into recession with their eyes wide open to finally break the inflationary pressure. Alternatively, it could cut interest rates despite the development, risking not only a consolidation of inflation but even a rebound, which would certainly not help the CAD. Let's hope that doesn't happen.
