Damned if they do. Damned if they don't.Today's inflation uptick number puts the BoC in an even more difficult position. A July cut now seems more unlikely. However, fiscal policy works very slowly. It's too soon for last month's cut to have worked itself into the economy. Personally, I believe this latest uptick is just an anomaly. There are definitely signs of weakness especially real estate which is the biggest contributor to the Canadian economy.
As the summer rolls on, we will likely see continued softness and without further cuts we may wake up one day to a surprisingly low print close to 2%. On the surface, that will look like a win since it is the BoC's target. But, on the other hand, it may look like we are slowing too fast, heading for a recession and falling behind the curve.
So, damined if they do cut and cause inflation to spike even higher. Or, damned if they don't cut and face recession worries. Up to now Tiff has been a CB leader. If he doesn't cut in July he will need to wait until September. If May's data is an anaomaly, then he may be facing a recession scenario by September. It I were Tiff, I would cut in july. We are still under 3% inflation. The risk of cutting outweighs the risk of pausing.