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CIBC Private Wealth

July 12, 2023

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Man at a lake, sitting on a cliff watching the sun rise with orange sky.

Canadians should expect inflation to remain high


The Bank of Canada (BoC) raised the overnight rate by 25 basis points (bps) today to 5.0%. The increase was expected by financial markets as excess demand and core inflation are proving more persistent than hoped for. Therefore, Canadians should expect inflation to remain higher for longer than anticipated before it starts moving towards the target rate of 2%.
 

CIBC Capital Markets confirms that today's BoC statement suggests risks are skewed towards another hike after the summer. However, the forecast for GDP growth is not currently as low as it was in the past. As of today, GDP growth is likely to be 1.5% in the third quarter and full year growth is anticipated to be 1.8% for 2023 and 1.2% for 2024, both above previous expectations. Because of this, CIBC Capital Markets feels there is scope for the economy to underperform the Bank's new GDP forecast and for the overnight rate to stay on hold throughout the remainder of the year.
 

As the BoC interest rate hike was expected, it seems that today’s US CPI inflation data is having a greater impact on Canadian equities than the rate increase. Craig Jerusalim, Senior Portfolio Manager, Equities, at CIBC Asset Management, says “resilient Canadian equities are yet to feel the full bite of the prior nine rate hikes, but equities won’t be able to ignore the tighter financial conditions indefinitely.”
 

Mr. Jerusalim confirms “the Canadian economy is two times more rate sensitive than our neighbors to the south.” This is likely because of shorter duration mortgages in Canada and because the housing market makes up a large overall percentage of Canadian GDP. It’s also why housing risk remains front and centre for the BoC. “Today’s move will likely weigh on expensive growth companies with long duration cash flows and highly levered sectors such as utilities and real estate.”
 

At CIBC Private Wealth, we take a comprehensive approach to managing, building and protecting your wealth. If you'd like to discuss this market and economic update in more detail or have questions about your investments, please get in touch with me any time.

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CIBC Private Wealth” consists of services provided by CIBC and certain of its subsidiaries through CIBC Private Banking; CIBC Private Investment Counsel, a division of CIBC Asset Management Inc. (“CAM”); CIBC Trust Corporation; and CIBC Wood Gundy, a division of CIBC World Markets Inc. (“WMI”). CIBC Private Banking provides solutions from CIBC Investor Services Inc. (“ISI”), CAM and credit products. CIBC Private Wealth services are available to qualified individuals. Insurance services are only available through CIBC Wood Gundy Financial Services Inc. In Quebec, insurance services are only available through CIBC Wood Gundy Financial Services (Quebec) Inc.


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