The Canadian dollar initially jumped after today's CPI report but some market watchers think it's not enough to push the Bank of Canada towards a rate hike on January 26. Implied market pricing shows the decision is a coin flip.
CPI rose 4.8% y/y accelerating from 4.7% but in m/m terms, it fell 0.1% on lower gasoline prices.
With oil now hitting 7-year highs, gasoline prices will reverse in January but CIBC doesn't think that's enough to tip the BOC to hike just yet.
A few weeks ago we may have been tempted to call a peak in inflation at this point. However, a reacceleration in energy prices, transportation issues impacting food costs and a strengthening once again in monthly house price gains suggest that we could grind a little higher still, before seeing a deceleration starting around spring time. For the Bank of Canada, headline inflation in Q4 as a whole was slightly below its October MPR forecasts. However, there may be increasing concern regarding the length of time it will remain elevated for and a broadening of price pressures outside of food, energy and supply constrained items. As such, while we lean towards the Bank holding off on rate hikes for now to see signs of recovery after this Omicron wave of business restrictions, a move next week is certainly possible and justifiable based on the inflation outlook.
Ahead of the BOC there's one piece of top-tier data left and it's the November retail sales report on Friday, along with the advance data for December. I think this week's BOC business outlook survey clinched a hike.