The next Bank of Canada meeting is on July 13 and the market is pricing in 69 basis points of hikes.
CIBC now says it's a 'near certainty' the BOC will hike to 2.25% from 1.50%.
"While food and energy drove much of the headline increase during the month, price pressures in rebounding services meant that, even excluding food and energy, inflation was very strong. The continuation of sharp and broadly based price pressures makes a 75bp hike from the Bank of Canada a near certainty, and likely means that the peak in interest rates will be higher than we previously anticipated," economists wrote in a note.
The later point is a critical one. The market is priced for 3.43% at year-end.
"With little respite from high gasoline prices on average in June, and with food prices likely to continue to increase, headline inflation should easily surpass 8% next month. However, with commodity prices starting to trend lower amid concerns of a global slowdown, inflation should finally moderate in late summer and into the fall. Headline CPI was already running well above the Bank of Canada's April projections prior to today, and so this release makes a 75bp move at the next meeting a near certainty and suggests that the peak in interest rates could be higher than the 2.75% we had previously predicted," CIBC writes.
USD/CAD is lower today despite the oil price drop as the US dollar slumps on an impressive rebound in risk assets. A big driver is the dip in Treasury yields today as Powell cites softening demand.