Ed was on BNN this morning to share his thoughts on the recent CPI update. He stated that he does not think the small uptick in inflation has “moved the needle much”. Inflation seems to have peaked and is trending downwards. Given the lag between changing rates and feeling the effect on inflation, he thinks a rate hike by the BoC would be hasty. Overall, the trend in inflation is still downward, so it is highly unlikely that the BoC will change course over the next few policy decisions.

Ed acknowledged that households observe headline inflation and that affects their expectations, and that interest rate hikes affect that rate through higher mortgage costs. However, the BoC has to look through those effects to keep their eye on core inflation and focus on the need to slow down the economy, which will happen in part by households spending a higher proportion of their income on mortgage payments. Ed continued by saying that the economic trends do not look quite stable yet, there are “mixed signals”. According to him, it still isn’t clear if we are in a stagflationary environment or not. The key measure to keep an eye on is core inflation. How that changes over the next few months will be critical for the economy and the BoC. Inflation may come down to the target by the end of the year, but currently there is no strong push for the Fed or the BoC to change policy.

Ed went on to say that there is enough confusion in the markets that investors should be able to find good opportunities. While there is uncertainty now, he predicted greater uncertainty in the future. In terms of specific investment recommendations, Ed stated that he sees a lot of opportunities in the US mortgage market, where spreads are wider today than they were in 2008.