BOC: Other Analysts See More Worrying Dynamics In CPI (2/2)

Some of the more cautious interpretations of the May data include those of National Bank, BMO, and Scotiabank:

• National was relatively neutral on the implications, still expecting a July cut: "We wouldn’t say this report significantly leans towards a cut or a hold when looking to next month’s decision (although the market interpreted it slightly hawkishly). While overall inflation remains reasonably well contained (headline or excluding taxes), there’s still a bit of uncomfortable pressure in the core segment. Tariff-driven inflation risks are also weighing on the central bank. It means that, when pricing the July 30th decision, markets will continue to hover in “uncertainty territory” until additional important data is released. To be sure, there's still a lot to go before the next meeting, including another CPI report next month, GDP, jobs data and a Business Outlook Survey. Our baseline forecast involves a July cut but that's very much a data dependent call. We'll need to see more co-operation in the next month, via a softer June inflation report and/or continued weakness in the labour market."
• BMO saw worrying dynamics in the CPI that reduced chances for a July cut, though they still appear to expect one: "The latest inflation results are broadly similar to April's outing—a deceptively calm headline number with core hovering too far above the 2% target for comfort. The BoC will likely need to see much more improvement before it's convinced that underlying inflation is headed back to 2%. The small counterpoint is that evidence is building that the economy is beginning to more fully feel the weight of U.S. tariffs, as the flash on manufacturing sales for May showed a 1.3% drop. The data over the next five weeks will ultimately drive the decision, but the odds of a July cut are lower now on the so-so CPI."
• Scotiabank, which also envisages the BOC's easing cycle already at an end, says the central bank shouldn't be considering cutting rates: "Core inflation remains too warm to be contemplating rate cuts. Ignore the headline CPI reading that continues to be weighed down by the elimination of the consumer portion of the carbon tax; it’s below the 2% target, but the tax distortion makes that meaningless. The bigger issue here is that underlying price pressures remain too high and rising breadth combines to signal that inflation has yet to be licked. To twist a phrase, the Bank of Canada shouldn’t even be thinking about thinking about when to cut rates."