Investing.com -- Macquarie economist David Doyle now expects the Bank of Canada to begin cutting interest rates in July, rather than June, reflecting stubborn core inflation in April’s CPI report. “These firm data lead us to push out the timing of our next expected cut to July,” Doyle wrote in a note to clients on Tuesday.
While headline inflation slowed to 1.7% year-over-year and declined 0.2% on the month, helped by energy prices and the removal of the carbon tax, core measures told a different story. The average of trimmed mean and median CPI accelerated to 3.15% year-over-year, the highest reading since March 2024.
“This was the strongest result since December,” Doyle noted, pointing to the 0.37% monthly increase in core measures as evidence the BoC will want more clarity before moving. Following the data, market-implied odds of a June cut fell from 68% to around 30%.
Macquarie still sees 75 basis points of easing from the BoC by year-end, but Doyle believes the central bank will now wait for the updated July Monetary Policy Report before making its next move. “In our view, the BoC is likely to await more data and assess the outlook with a new MPR forecast in July,” he said.
Doyle also highlighted a mix of inflation dynamics: food prices were up 0.5% month-over-month, while shelter inflation remained steady at 0.2%, supported by a 0.7% uptick in rent. He expects overall inflation to moderate unevenly in the months ahead, citing slowing wage growth and rising unemployment, now at 6.9%.
Durable goods inflation reaccelerated, while semi-durables fell, and travel services saw a typical post-March rebound. Doyle flagged the potential for tariffs to keep pressure on goods prices, writing that “upward momentum” may persist despite recent moderation in Canada’s retaliatory trade response.