Canada: March CPI data might not mean that much for the BoC - CIBC

Data released today showed that core inflation in Canada during March rose 0.3% above the 0.2% expected. Analysts at CIBC, point out that the acceleration in inflation, both headline, and core, will catch investors’ attention, but it might not mean that much for the Bank of Canada. 

Key Quotes: 

“Headline inflation picked itself back up off the mat and is now, along with core measures, hanging around the Bank of Canada’s 2% target. Gasoline prices added a boost to total inflation, and two out of the central bank’s three core measures of price pressures were also higher in March. Still, the Bank of Canada doesn’t usually concern itself with decimal-point moves even if it’s in their core measures, which should prove particularly true this time around with capacity pressures easing notably in its own Business Outlook Survey.”

“The core-common component measure remained at 1.8%, leaving the average of the three core readings bang on the Bank of Canada’s 2% target.”

“Given the recent soft patch in growth and the easing capacity pressures, the Bank will be more focused on a potential output gap opening up, and the resultant implications for future price pressures, than a nominal acceleration in current inflation.”

“Alongside a narrower trade deficit than was seen at last check, the CPI numbers are generating some selling in the bond market. As a result, yields are higher and the Canadian dollar is stronger.”