CIBC World Markets has challenged the Bank of Canada’s inflation outlook, suggesting that the central bank’s expectations for 2027 may be too high. In a report released Monday, CIBC economists argued that while energy prices remain elevated, businesses may struggle to pass on higher input costs to consumers due to economic weakness.
The report noted that the Bank of Canada anticipates inflation tracking above 3% for most of next year. However, CIBC believes that underlying economic conditions, such as lingering slack in the labor market, moderate income growth, and already high profit margins for wholesalers and retailers, will prevent businesses from shifting the burden of higher costs to consumers.
As a result, CIBC suggests that corporate margins, rather than consumer prices, will absorb much of the impact of inflated costs. This scenario could lead to weaker-than-expected inflation, reducing pressure on the Bank of Canada to raise interest rates.
The report also highlighted that the central bank’s 3% core inflation forecast assumes a significant acceleration in core goods prices, a scenario more aligned with a stronger economy than the current one. The path for interest rates will depend on whether incoming data validates these expectations.