By James Langton
(February 24 – 11:50 ET) – The latest Consumer Price Index report, released this morning, indicates that inflation is under control for now. The report covers the month of January. It says that the CPI is down 0.1% on the headline and 0.3% on the core.
Today’s report has economists searching for witty metaphors. BMO Nesbitt Burns chief economist Sherry Cooper characterized the CPI results as “keeping the inflation genie in the bottle.” She’s capitalizing on a song by grammy award winner and pop diva Christina Aguilera. Economists at CIBC World Markets are describing inflation as “the phantom menace” – after the Star Wars movie “prequel.” Only RBC DS Global Markets eschewed pop poetry, admitted that the consensus expectation was wrong, and asked “what’s next”?
The question “What’s next?” is a big one for traders. Cooper is expecting inflation to run higher in February, with record gas prices factoring into the CPI. Cooper is still expecting the Bank of Canada to follow any tightening move made by the U.S. Federal Reserve Board.
CIBC economists agree the BOC is still set to tighten, regardless of today’s tame report, although it fails to see any looming inflation apart from in the energy sector. They note that the CPI isn’t even getting any help from currency depreciation, as the loonie settles into a lateral trading range against the US dollar.
“While some will now question the Bank of Canada’s resolve to match the Fed, look for Thiessen to follow the US lead in pushing interest rates higher by 50 basis points this spring,” says CIBC economists. They believe the BOC will prefer higher rates over a weaker loonie.
RBC DS is also sticking with its call for 25 basis point hikes at each of the March and May
Fed meetings, with the Bank following suit.