-- Canadian bond yields fell following Thursday's gross domestic product release to partly unwind the surge seen the day before in reaction to the perceived hawkish tone from the Bank of Canada, said CIBC.
Growth in the Canadian economy appears to have reignited in Q1, although it is far from running on all cylinders, and March's advance estimate points to a stall again at the end of the quarter, noted the bank. The continued uneven paths for GDP growth and employment suggest that slack within the economy isn't being absorbed, and will continue to act as an offset to higher energy prices in keeping core measures of inflation grounded.
Because of that, CIBC continues to believe that Canada's central bank can look through the current spike in headline inflation, and keep interest rates on hold throughout this year.
Monthly GDP data for February pointed to a 0.2% month-over-month increase, which was in line with the consensus forecast. The advance estimate for March GDP pointed to a flat reading.
While growth in Q1 appears close to the BoC's Monetary Policy Report projection, the apparent stall again in March is a concern regarding momentum heading into the spring, stated CIBC. Consumer spending appears to be slowing again, which is understandable given the squeeze from higher gasoline prices as well as a still sluggish labor market.
The bank continues to believe that there's enough slack within the economy to keep core measures of inflation fairly muted, even as the impact of higher energy prices passes through in some areas, which will enable the BoC to leave interest rates on hold through 2026.