28 May 2018

All new phrases and moods on trade tensions, the real estate market and economic slowdown will be extremely important for assessing the odds of a hike in July.

Now, Poloz needs to pay attention to new factors, such as Trump’s threats on NAFTA and possible tariffs on auto imports from Canada. One more threat comes from the household debt. Poloz devoted a May 1 speech to the issue of consumers’ vulnerability to rate increases.

In addition to it, Poloz has been supporting the idea that Canada has reached the “sweet spot” of the business cycle, when companies tend to expand in order to meet the demand and keep the economy at full speed without a sharp inflation. According to Poloz, it’s his “obligation” to support this process with stimulative methods.

Moreover, following five years of lower than necessary inflation, growing demand has led to consumer prices reaching or even exceeding the BoC’s 2% target level next year.

“As inflation remains at target and the labour market is healthy, one rate increase will not affect the economy too significantly, especially with a recovering growth after the first quarter”, – noted Royce Mendes, a CIBC Capital Markets senior economist in Toronto. In his opinion, the next rate hike will be in July.