The Problem with Smart People

Well, this morning we saw the inflation report released for Canada, and oh boy was it a doozie. Back in late December of 2024, I put out my year end predictions for 2025, and one of the main things I saw was inflation re igniting. Of course, all the ‘smart people’ took it as an invitation for open season to let me know just how wrong I was. And they did not relent. It was a fun time for sure.

Now, I didn’t say inflation would go higher, I said inflation could go higher. That is a big distinction. I simply said that I thought inflation expectations from all the smart people were a bit low, and the real surprise would be a reacceleration of inflationary pressures. We all saw the inflation numbers today come out at 2.60% – way the fuck above even the most aggressive estimates. Just for old time sake, the headline inflation number in Canada in December 2024 was 1.80%. I don’t have a PhD in mathematics ( although it is a bucket list item ) but I am pretty freaking sure that 2.6% is higher than 1.8% by about .8%. For those that prefer statistics, it could be said that inflation is actually up 44.44% since December 2024.

Now of course, this is the headline inflation. I don’t like headline inflation, because it doesn’t really measure what we need to measure. I have been consistent in my approach to use CPI Trim ,CPI median, and CPI Core as my metric, unlike some financial reporters who bounce around and use whichever number suits their narrative best. So let’s take a quick look at the CPI Trim and CPI median and see if this helps the cause, shall we? Fuck. CPI Trim and CPI median are now up to a whopping 3.3%. Again, no mathematician here, but I am pretty sure that 3.3% is higher than the BOC target of 3%? Typically if inflation stays above 3% it means the BOC wants to hike rates – never mind cutting rates.

Ah, but of course all the smart money will come at me and say that the only reason that inflation was up last month is because of the GST / HST holiday ended. Okay, well for that we would need to look at the CPI Core inflation. Now, CPI Core inflation is actually the BOC’s preferred method of inflation, and one of the big reasons is simply because CPI Core inflation removes taxes from the calculation. If a province, or a federal government hiked sales tax for example, then it wouldn’t play around with the inflation rate as much, and helps smooth out the bumps. It also helps remove anomalies from one province with a higher provincial tax, etc. Take note of this for everyone thinking the carbon tax on fuel going to zero will help the inflation numbers come down in the next couple of months. Okay, so if we look at Core inflation, it was up to 2.9%!!! Double Fuck!!!

So, we have headline inflation blowing past estimates, Core inflation right up kissing the 3% handle, and median and Trim readings well over the level where the BOC would typically hike rates. So, if you think that the BOC is cutting rates 50 bps in April, then I can only assume you like to like windows as well. The rate cuts are probably coming to a stop – Tariffs or not. You better figure out a business plan that doesn’t involve telling everyone to go variable.

There is a very real possibility that the next move from the BOC is a hike!!! Yep, a hike. It is most probable right now ( a lot of shit can go down between now and April 16 when the BOC announcement is made ) that Tiff and Co. hold rates in April, re assess and then if inflation stays where it is, or increases at all, the next move is a hike.

But the Tariffs!!!

Yeah, yeah, the tariffs. I know, DJT Bad. Interestingly enough, if you go to the BOC website and read their mandate, there is no mention in their mandate about balancing the economy for tariffs. There is no mention of making life more affordable for people paying tariffs, and there certainly isn’t any part of what they do that requires them to drop rates because of tariffs. Now, all that being said, the country is now lead by Tiff’s predecessor, so it will be interesting to see just how much independence the BOC has now that the PM knows all the tricks. It should also be noted here that the tariffs are a tax that is implemented and collected by Ottawa, not DJT, so if tariffs drive pricing up, then we really have no one to blame but Canadian leadership. What I am not sure of exactly ( hey, this is new to all of us ) is if the tariffs are considered a tax and removed from Core inflation readings, or if the higher price of the item due to the tariff is simply passed along into the CPI. No one I have spoken to can tell me which way it goes. I have no doubt though that when we finally learn the answer it will be the way that makes the data look as good as possible for the incumbent administration, so do with that what you will.

Today is a great freaking day to get your pencils out, and work a plan to deal with rates that are likely headed higher. Variable could potentially see an increase, and the Canada 5’s are up this morning on the inflation news – although mildly. Since the 5 year put in the 2025 low around 2.52%, it has climbed 15 bps, so don’t be looking for any lenders to drop their 5 year rates either. If anything, lock in what you can now, as we may very well see some small increases in 5 year fixed rates in the coming days.

Again, this is just my opinion, and certainly not tradeable intel, but it is always good to look at things from a lot of perspectives. The ‘smart’ money will always be the loudest voice, but it doesn’t mean they are always the right voice.