A pair of RBC economists predict a drop in next week’s monthly inflation reading, but say it would take a major surprise to stop the Bank of Canada from hiking interest rates in July.
Statistics Canada is due to report Tuesday on Canadian consumer price index data for the month of May.
Analysis from economists Nathan Janzen and Claire Fan published Friday said the inflation print, along with other releases on gross domestic product and business outlook, is a “critical” set of economic data that will influence the Bank of Canada’s next interest rate movesThe economists said they expect to read that headline price growth fell in May to 3.6 per cent, thanks to lower energy prices, after ticking up slightly to 4.4 per cent in April.
The economists said they are watching for weakness in other areas of the economy such as the Bank of Canada’s Business Outlook Survey and gross domestic product. Data is also set to be released on those areas next week. Even with some softening, the economists said it’s unlikely the central bank will pause rates at its next meeting.
“We continue to see signs of cracks forming in the economic backdrop, but it’s highly unlikely that the BoC ended its pause in interest rate hikes in June for just one additional 25 basis point increase,” they wrote. “It would likely take substantial downside surprises in data releases to prevent another hike at the next meeting in July.”
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