Economists debate the size of the Bank of Canada's next rate cut as inflation edges higher
Economists predict that Canada’s latest inflation data will not dissuade the Bank of Canada from cutting interest rates at its upcoming December meeting.
However, the figures may influence the extent of the rate reduction, according to BNN Bloomberg.
Statistics Canada reported on Tuesday that the consumer price index (CPI) rose 2 percent in October compared to the same month last year, up from a 1.6 percent increase in September.
The Bank of Canada is set to make its final interest rate decision of the year on December 11.
Tiffany Wilding, managing director and economist at PIMCO, stated in an interview with BNN Bloomberg that, while inflation showed an uptick, it remains well below the pandemic’s peak levels.
She remarked, “The outlook remains intact for the Bank of Canada to continue to reduce interest rates and bring policy back into more normal territory. I do think today’s report probably reduces the likelihood that they cut another 50 basis points.”
Wilding also noted the Canadian economy's resilience, citing positive retail sales figures.
“The Canadian economy is by no means crashing, but nevertheless, we are in a period now where the Bank of Canada should continue to normalize policy,” she added.
In a report released Tuesday, RBC economist Abbey Xu highlighted the surprise increase in the CPI-median and CPI-trim measures, preferred by the Bank of Canada for assessing core inflation.
Despite exceeding expectations, these measures remained within the Bank’s target range of 1 to 3 percent. Xu pointed out that the Bank’s decisions remain data-dependent, with another labour market report due before its December meeting.
“Our base-case assumes an additional 50 basis point cut to the overnight rate by the Bank of Canada in December,” Xu stated.
Tu Nguyen, an economist with RSM Canada, shared her perspective in a statement to BNN Bloomberg emphasizing that the economy’s excess supply is likely to keep inflation near target in the coming months.
She commented, “The acceleration in Canada’s consumer price index in October will not deter a December rate cut by the Bank of Canada, though the precise size of the cut is up for debate.”
