Hot inflation slams door on more BoC rate cuts: Scotiabank

Investing.com -- The Bank of Canada’s rate-cutting spree is running into a wall of stubborn inflation, with Scotiabank (TSX:BNS) warning that rising price pressures leave the central bank with “no way” to justify more easing any time soon—if at all.

“There is no way that the BoC should be cutting any time soon, if at all. Despite modest slack, other forces are keeping core inflation at sticky, elevated levels even before trade war effects bite through supply chain effects,” Scotiabank analsyts said in a recent note.

Headline inflation for April in Canada was roughly in-line with expectations, slowing to 1.7% from 2.3% in March, but that slowdown was mostly attributed to the removal of the consumer carbon tax from energy products. 

The BoC’s preferred core inflation measures, however, are running well above target. Trimmed mean CPI jumped 4.6% month over month annualized, and weighted median rose 4.5%, pushing year-over-year readings up to 3.1% and 3.2%, respectively—both hotter than the BoC’s April projections. “These are not just flashes in the pan. The readings have been far too warm for far too long now," the analysts added.

Markets responded by slashing the odds of a Jun. 4 rate cut: pricing for a move fell from 17 basis points before the CPI release to just 8 basis points after, while full-year expectations have shifted from as much as 75 basis points of cuts in early April to just 25–50 basis points now, according to the note.

Scotiabank flagged that the bar for further easing is now “very high,” with forward-looking risks from “tariffs and supply chains looming.” BoC Governor Macklem, set to speak later this week ahead of Q1 GDP data, is likely to reiterate that policy decisions remain data dependent.