Has smallest rise in CPI in more than three years sealed a 50-point cut?
Canada’s Consumer Price Index for September showed a 1.6% annual increase on Tuesday, easing back from the 2% gain in August. But has that secured a jumbo interest rate cut next week?
The data from Statistics Canada means that this measure of inflation posted its smallest increase since February 2021 with gasoline prices providing the largest impact on deceleration with a 10.7% decrease in September (year-over-year) more than double the drop in August (5.1%).
Rent and air transportation costs also eased last month but groceries still outpace many other CPI components with food from stores up 2.4%, the same rate as in August.
So, how about that rate cut?
“We now forecast a 50bp cut at the October meeting and continue to predict an overnight rate of 2.25% by mid-2025,” said Andrew Grantham at CIBC Economics, noting that while CPI may rise again as gasoline prices have increased this month, but core inflation measures should continue to decelerate due to slack in the economy.
RBC Economics’ Claire Fan sees a jumbo cut on October 23, stating that given the CPI print “taken together with the third quarter release of the BOS survey last Friday that pointed to further unwinding in inflation pressures in the future, we think there’s little reason for the BoC to turn their worries back from a weakening economy to inflation, and expect them to go ahead with cutting by 50 bps next week.”
And Derek Holt at Scotiabank expects a 50-point cut but notes that “there is still the risk that the BoC—that has surprised markets many times in the past—could opt for -25bps, but the hurdle to doing so is set rather high now.”
Meanwhile at National Bank, Matthieu Arseneau is betting on double-jumbo: “We expect a 50bps cut in October and another of the same magnitude in December,” he wrote in his CPI reaction, stating that the “door is wide open” for the BoC to bring its policy rate back to a 2.75-3% range “as quickly as possible.”
