Monday Market Minute | May 30, 2022

Canadian CPI hits 6.8% with no sign of peaking — BoC under pressure to accelerate hikes

What Moved

StatsCan reported Canadian CPI at 6.8% in April — the highest since January 1991 — with core inflation measures (CPI-trim, CPI-median) also accelerating. Inflation was no longer confined to energy and food; shelter, services, and durable goods were all contributing. The breadth of price increases made it clear that the BoC's cumulative 75 basis points of tightening so far had barely dented inflation momentum. Markets began pricing in the possibility of a 75-basis-point hike at the June decision.

Why It Matters

Persistent, broad-based inflation changed the calculus for every private markets allocation. Real returns — the only returns that matter — were deeply negative for most fixed-income instruments. Private credit at floating rates plus 500-800 basis points was one of the few asset classes delivering positive real yields. Infrastructure with inflation-linked revenue streams and real estate with contractual rent escalators also provided protection, but only if the underlying assets were high-quality.

Signal to Watch

The June BoC decision — whether Macklem would stick with 50-basis-point increments or escalate to 75, setting the stage for an even more aggressive summer.

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