Some surprises are good, like a b-day party or finding a $20 bill in your coat. Others are less good, like a cancelled reservation or a blister. Recent inflation data is one of those surprises.
What happened: Inflation rose 4.4% year-over-year, the first time price growth accelerated since reaching a peak of 8.1% last June and ending a run of five consecutive lower readings.
- Rising costs across rent, mortgage interest, and gas prices contributed to the rise, but on the bright side, costs for groceries cooled, as did core inflation metrics.
What’s next: The Bank of Canada said it would “conditionally pause” rates in March while it assesses the impact of eight previous rate hikes. The bank is targeting a 3% annual inflation rate by the summer, which means two things: That this year just flying by, and that the latest unexpected bump opens the door to a rate hike without (arguably) breaking their pledge.
- Scotiabank economist Derek Holt wrote in a note (very subtly titled The BoC’s Unfinished Business) he would “assign high market probability to a June hike.”
- BlackRock’s Kurt Reiman told The Peak inflation might also persist thanks to difficult-to-control factors like geopolitical tensions and a red-hot labour market.
Bottom line: The odds of an interest rate hike in June just got a lot bigger.—QH