As we move closer to the next Bank of Canada (BoC) interest rate announcement, experts with the ‘Big Five’ banks are busy parsing through the latest economic data to give their best bets on rate cuts, or holds, to come. Governing Council has given next to no indication on what their next moves will be, after all, only saying in the latest summary of deliberations on June 19 that it’s “reasonable” to expect further rate cuts, but that Council will take future monetary policy decisions “one meeting at a time.”

In more recent news, Statistics Canada’s latest Consumer Price Index reading saw a slight bump, with a 2.9% year-over-year gain recorded in May, up from 2.7% in April. This has had some experts faltering on their previously-held belief that the central bank will cut the policy rate again this month — however, CIBC’s Avery Shenfeld is not in that camp.

Shenfeld, who is Managing Director and Chief Economist of CIBC Capital Markets, said in an episode of 'Eyes on the Economy' this week that May’s uptick in Canadian inflation is not something we ‘want’ to see on the cusp of another rate decision, but it isn’t enough to sway CIBC’s interest rate forecast.

“Admittedly, there's a bit more uncertainty behind this call, but we've stuck with it, and still view a July rate cut is more likely than not, and two follow up cuts to that. We're trying to forecast the broad direction of the wind, not every little twitch of the weather vane,” Shenfeld said.

“We do have to remember that these monthly data are volatile, and that's why the Bank of Canada focuses in on three-month averages and year-over-year rates,” he later stated, when speaking to the fact that markets repriced the July rate cut to a 50/50 bet as a result of May’s CPI. “If we look at both the three-month moving average of the core numbers as well as year-over-year rates, there really wasn't that much damage to this thesis that inflation is moderating. Remember that we had some very low readings just ahead of this.”

Avery Shenfeld, Managing Director and Chief Economist of CIBC Capital Markets

Shenfeld also reminded listeners that taking mortgage interest costs out the equation tells a very different story on inflation, and that’s something the Bank does when looking at core inflation, along with seven other volatile components: fruit, vegetables, gasoline, fuel oil, natural gas, intercity transportation, and tobacco. “So I think it behooves us to remember that the bank does smooth these numbers out, and as long as the next reading is not problematic, I think we're still very much in the territory that would be consistent with a July cut.”

Besides CPI, there are other metrics that the BoC will consider during their July meeting, and one of the big ones is gross domestic product (GDP), which Shenfeld forecasted will come in somewhere between 1.5% and 2%” for the second quarter. Though he noted that that figure is a a “shade above” what the Bank anticipating, he also indicated that it's probably not enough to raise a red flag.

Also weighing into the BoC’s upcoming decision are the latest statistics from local real estate boards like TRREB and GVR, which made it clear that the just one rate cut was not enough to stoke housing markets, as well as new employment data, released today, that revealed the national unemployment rate edged up from 6.2% in May to 6.4% in June, with 1,400 jobs shed in the month.

“[We’re] eyeing both the employment numbers, but also things like the long-term unemployment rate as well as the wage series — even though we're not big fans of it, we know the Bank of Canada does look at it,” Shenfeld noted. “I think as long as those are reasonably temperate and not undoing the picture of labor market slack, again, we can stick with our call for a July rate cut.”

The next interest rate announcement is scheduled for Wednesday, July 24, 2024.