Monday Market Minute | Feb 13, 2023

Inflation dips to 5.9% but the BoC's conditional pause faces its first test

What Moved

StatsCan reported January CPI at 5.9%, continuing the gradual descent from the June 2022 peak of 8.1%. The headline number provided some comfort, but the BoC's preferred core measures — CPI-trim and CPI-median — remained stubbornly above 5%, well outside the Bank's comfort zone. Grocery inflation held near 11%, keeping household-level pressure acute even as energy and durable goods prices retreated.

Why It Matters

The inflation trajectory was the single most important variable for every private markets strategy in Canada. For private credit, elevated inflation sustained the higher-for-longer rate environment that was driving exceptional yields. For real estate, it inflated replacement costs even as transaction values fell — widening the gap between market price and reproduction cost. For PE sponsors, it complicated EBITDA normalization in due diligence, making it harder to distinguish genuine growth from inflationary pass-through.

Signal to Watch

The BoC's next decision on March 8 would test whether the conditional pause could survive sticky core readings without markets repricing a resumption of hikes.

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