RBC: oil spike unlikely to force BoC pivot
RBC’s latest analysis argues a recent oil-price move is unlikely, by itself, to reignite broad Canadian inflation or force the Bank of Canada to change course. The note says weaker domestic demand and improved supply dynamics mean energy headlines need to be larger or more persistent to shift policy materially. (rbc.com; canadianmortgagetrends.com)
Royal Bank of Canada said a recent oil-price jump is unlikely on its own to push the Bank of Canada off its current rate path. (rbc.com) In a note published April 13, Royal Bank of Canada said Canada’s backdrop now looks different from 2022: supply chains are in better shape, domestic demand has slowed, and core inflation pressures have eased. The bank said higher oil prices would need to last beyond this quarter to start lifting non-energy prices in a broader way. (rbc.com) The Bank of Canada held its policy rate at 2.25% on March 18 and said rising global energy prices would push total inflation higher in coming months. In the same statement, it said inflation excluding indirect taxes and its core measures were all close to 2%. (bankofcanada.ca) Canada’s latest official inflation data showed headline consumer prices rose 1.8% in February from a year earlier, down from 2.3% in January. Statistics Canada said gasoline prices fell 14.2% year over year in February after a 16.7% drop in January, while prices excluding indirect taxes rose 1.9%. (statcan.gc.ca; statcan.gc.ca) That split is the point of the Royal Bank of Canada argument: oil can move the headline number fast because gasoline shows up immediately at the pump, while “core” inflation tracks whether price pressure is spreading across the rest of the economy. The Bank of Canada’s core gauges, CPI-trim and CPI-median, are designed to filter out those one-off swings. (bankofcanada.ca; bankofcanada.ca) Royal Bank of Canada also said this shock is more concentrated in oil than the 2022 surge that hit energy, fertilizer, freight, and already-strained supply chains at the same time. Its economists wrote that global oil production rose by 3.7 million barrels a day in 2022 despite the Russia-Ukraine war, while the current Middle East conflict has raised more direct concerns about oil transit through the Strait of Hormuz. (rbc.com) Royal Bank of Canada’s separate March analysis said the size and duration of any oil-price surge will determine whether the Bank of Canada responds. It also said geopolitically driven price spikes are less likely to trigger a big new wave of Canadian oil-and-gas investment, which limits the growth boost that might otherwise offset the hit to household purchasing power. (rbc.com) The next scheduled Bank of Canada rate decision is April 29, when policymakers will also publish a new Monetary Policy Report. For now, Royal Bank of Canada’s view is that higher gasoline prices may lift the inflation headlines, but not enough by themselves to force a policy pivot. (bankofcanada.ca; rbc.com)
