BoC June Deliberations Focused on Consumer and Core Inflation Strength
The Bank of Canada’s summary of deliberations for the June 7 meeting, which decided to tighten policy by 25bps, show agreement that tighter policy was needed though there was a debate over whether to move at the meeting, or to hold but signal a move in July. Generally however the tone is hawkish.
Global growth as seen as moving in line with expectations but resilience in core inflation, and in North America, consumer spending, was noted. Turning to Canada, the BoC stressed the strength of consumption within the stronger than expected Q1 GDP release but did see some signs of easing in labor market strength. That a stronger than expected April CPI also showed 3-month core measures picking up also caused concern.
The BoC concluded that resurgent consumer spending and slowing of progress in core inflation means that policy did not look restrictive enough. After considering waiting for more data the BoC decided that enough data had accumulated to justify a 25bps tightening, to 4.75%, at the meting and assess the need for further increases based on incoming data.
This suggests that the July 12 meeting will be a live one with the BoC set to base its decision on incoming data. May CPI on June 27 will be particularly significant though also to be watched will be June employment on July 7, with May employment having underperformed expectations shortly after the June 7 decision, as well as April GDP on June 30. April retail sales with a 1.1% rise today significantly exceeded expectations, and suggest consumer momentum continued at the start of Q2, though in real terms the increase was a moderate 0.3%.