Bank of Canada rate-cut bets recede as core inflation proves sticky

Canadian inflation excluding food and energy costs is expected to remain above 3% until the fourth quarter of this year, the median forecast of seven economists recently surveyed by Reuters showed, which could dash hopes of an early Bank of Canada shift to cutting interest rates.

While Canadian inflation has cooled in recent months, much of the relief has come from lower energy prices, a volatile component that the BoC tends to exclude when making policy decisions.

The readings for core, or underlying, inflation, such as the widely-tracked Consumer Price Index excluding food and energy, are showing greater persistence than the headline rate after price pressures spread from goods into slower-moving items, such as wages and services.

“We suspect they (BoC) will only start trimming rates when they are convinced underlying inflation trends are set to move below 3%,” said Doug Porter, chief economist at BMO Capital Markets.

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