Canada: Headline inflation to be depressed by slump in energy prices - ING

"Headline inflation is likely to be depressed by the slump in energy prices, but this is unlikely to overly concern the Bank of Canada unless we also see a drag on core figures – a real risk given persistently weak wage growth," argue ING analysts.

Key quotes

"Following a more dovish tone in December and slowing economic momentum, both in Canada and across the globe, the central bank held the policy rate at 1.75% in its January meeting. From the bank's outlook in the October monetary policy, there was also a downward revision of 0.3% to this year’s headline inflation forecast, though this shouldn’t imply a slower tightening of policy given core inflation tends to be the bank's main hiking rational."

"The next rate hike opportunity would be April when a new monetary policy report will be published, but we think a hike is more likely to come in July. This will allow the BoC to wait for confirmation that the Fed is still in hiking mode (if, as we expect, the Fed resumes hiking in June)."

"We also see a second rate hike coming in the fourth quarter, but believe more than that is unlikely in light of the current risk environment and our view that the Fed is likely to moderate the pace of policy tightening in the US."