UBS Sees Bank of Canada on Hold This Year Despite Markets Pricing for Two Rate Hikes

11:04 AM EDT, 05/20/2026 (MT Newswires) -- Canadian headline inflation was up 0.4% in April, not seasonally adjusted, just below the 0.5% increase UBS expected, but a "chunk" below the 0.7% increase consensus expected.

This left the annual rate of inflation up 2.8% over the year

in April, a 0.4 percentage point (pp) acceleration versus the 2.4% in March. The headline CPI was boosted by another strong 5.7% rise in energy prices over the month in April, a moderation from

the 13% in March.

Core inflation slowed even further, rising just 0.06% over the month, not seasonally adjusted. That leaves core CPI up 1.5% in the 12 months through April, versus 1.9% in the 12 months through March.

The Bank of Canada's preferred core inflation measures both moderated. The trimmed mean measure fell 0.2 pp to 2.0% over the year, and the weighted median fell 0.2 pp to 2.1%.

The BoC has signaled a willingness to look through the energy-driven pickup in headline inflation. UBS expected that the BoC would be focusing on dynamics in core inflation, and in particular, its preferred measures of core inflation, both of which came in softer than expected.

The breadth of inflation pressures, which narrowed in April, is also a key thing to watch. UBS predicts the BoC will remain on hold this year, despite the current market pricing for two rate hikes.

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