Canadian inflation: Markets are getting ahead of themselves on rate hikes - CIBC

The recent data on Canadian inflation suggests that the market may be overreacting regarding the timeline for interest rate hikes. CIBC's Andrew Grantham indicates that the November Consumer Price Index (CPI) release shows headline inflation steady at 2.2%, but the details do not support aggressive price hikes expected in the market. Grantham highlights the dynamics of rising food and gasoline prices ('push') being countered by easing core inflation ('pull'), leaving the Bank of Canada in a stable yet challenging position. CIBC states that the inflation rate is around 2.5%, which is too high for further rate cuts but not enough to justify the recent market pricing for hikes. They warn of upcoming volatility due to baseline effects from last year's GST/HST holiday, which may dilute headline figures. CIBC predicts that the Bank of Canada will maintain its rate at 2.25% throughout next year, implying that the Fed's actions will increasingly impact USD/CAD. Following this news, bond yields and the Canadian dollar dipped slightly as traders began to unwind hike bets.