Inflation for September eases to 1.6%, below the Bank of Canada's target rate
Canada’s inflation rate fell to 1.6 per cent in September, dropping well below the Bank of Canada’s two per cent target and increasing bets that the central bank will accelerate cuts to its policy interest rate.
The inflation reading, the smallest year-over-year increase in prices since February of 2021, has many economists now predicting that the central bank will make a 50-basis-point cut to its policy rate next week, after three consecutive 25-basis point cuts brought the rate to 4.25 per cent.
Bank of Montreal chief economist Douglas Porter said that the big improvement in inflation, coupled with an unemployment rate that remains high at 6.5 per cent, “will be enough to prompt the Bank of Canada to opt for a 50-basis-point rate cut later this month.”
In a note to clients, David Rosenberg, founder of Rosenberg Research & Associates Inc., pointed to declines in clothing prices (-4.4 per cent), telecom prices (-5.1 per cent) and motor vehicles (-1.3 per cent) as evidence that “pockets of outright deflation are emerging.”
“At 4.25 per cent, the Bank of Canada rate is still around 150-200 basis points north of neutral,” Rosenberg said. “Given where inflation and the unemployment are, the Bank of Canada is well behind the curve, and there should really be nothing to stand in the way of a 50 basis point rate cut at the Oct. 23 meeting, even with the Fed having turned a tad less dovish of late.”
The deceleration in headline inflation was driven by a drop in gasoline prices, which fell year over year by 10.7 per cent, Statistics Canada said on Tuesday. Fuel oil and other types of fuel fell by 22 per cent on a yearly basis, while the price of air transportation was also down by 4.4 per cent. On a monthly basis, overall CPI
Read more on financialpost.com
