The July Bank of Canada decision is shifting more-decisively towards a rate cut after today's softer retail sales and PPI numbers. The market is now pricing in a 73% chance of a back-to-back cut.
Retail sales matched the +0.7% estimate for April but the May advance report showed a 0.6% decline and the March reading was revised to -0.3% from -0.2%. Add it up and it points to a weakening consumer, something that was also seen in the Canadian card data from RBC.
Inflation also appears to be slowing and today's PPI reading of 0.0% was below the +0.5% expected. Raw materials also fell 1.0% in the month (though that follows a 5.3% climb the prior month).
It's notable that the Canadian dollar hasn't been weakening as BOC cut odds increase. That could be just variance in the FX market and a response to oil prices rising but I believe the BOC is behind the curve and the market could ultimately cheer effects to cut rates as there is still an opportunity for Macklem to avoid a hard landing.
