On April 1, Bank of Canada Governor Stephen Poloz mentioned that “Recent economic data have been generally consistent with our expectation that the period of below-potential growth will prove to be temporary.” Overall, the mix of encouraging and negative information received since tends to support Poloz’s affirmation.
On a positive note, four factors are very constructive for the outlook: the remarkable job growth observed so far this year (+115K, +0.6%), the steady 6.4% year-over-year real GDP growth figure released by China for 2019Q1, WCS oil prices selling at a small discount to WTI which is remaining above US$60/bbl and a soft CAD/USD.
This being said, the Business Outlook Survey indicator (see chart) – which extracts the common source of variation in the companies’ answers relative to business investment, hiring intentions, etc.– suggests that economic growth could be a notch weaker than anticipated in the January 2019 Monetary Policy Report. Also, the adjustment of consumers to the past interest rates hikes is not over even though retail sales rose by a brisk 0.8% m/m in February according to this morning’s report released by Statistics Canada. Nominal and inflation-adjusted retail sales are still down by 1.2% and 0.6% respectively, from the peak observed in October 2018.
Bottom Line: In summary, there is no fundamental change to the BoC storyline. The “core inflation measures remain close to 2 per cent” passage in its March 6th decision statement is still valid today. Indeed, the three core CPI metrics edged up from 1.9% in February to 2.0% in March, bringing down the inflation-adjusted policy rate to -0.25% (see chart). Thus, we expect a short BoC decision statement on April 24 ending with the same sentence used on March 6th: “Governing Council judges that the outlook continues to warrant a policy interest rate that is below its neutral range.”
