Data released on Thursday showed Canada’s Real GDP rose 0.3% in April on a monthly basis in line with market consensus. Analysts at CIBC point out the Canadian economy is slowing down but not in a way that suggests inflation will do the same. 

Key Quotes: 

“Growth in the Canadian economy is cooling, but not entirely in a way that will convince policymakers that inflation will do the same. Monthly GDP increased by 0.3% in April (in line with the consensus forecast), but advance data for May points to a decline of 0.2% during that month. However, declines in mining, oil & gas and manufacturing suggest that the monthly drop in May was at least partly due to supply issues rather than slowing demand, which could add to, rather than subtract from, current inflationary pressures.”

“For Q2 as a whole, GDP appears to be tracking just below a 4% annualized pace, compared to the 6% rate the Bank of Canada had forecast in its April MPR. However, other than perhaps a quicker retreat in housing activity, the slower than projected growth appears to be due to supply rather than demand side factors. As a result, it will do little to ease the Bank of Canada's concerns regarding current inflationary pressures. A slowing in other elements of domestic demand, including in retail sales and consumer-facing services, is expected to show up more during the second half of the year, with households currently able to use the excess savings put aside during the pandemic to cushion the blow of high inflation and interest rate increases.”