Inflation rate ticks up, cooling hopes of bigger Bank of Canada cut

financialpost.com:

Canada’s inflation rate rose to two per cent in October, lowering the likelihood of another jumbo cut to interest rates by the Bank of Canada next month.

The re-acceleration, from a 1.6 per cent reading in September, was largely attributed to a smaller decline in gasoline prices in October, Statistics Canada said Tuesday.

Though the uptick in the price level was expected by the Bank of Canada, which predicted in its latest monetary policy report that inflation would move above two per cent in the coming months “reflecting a smaller drag from energy prices,” core measures of inflation still came in higher than expected, prompting markets to trim its bets of another 50-basis point cut in December.

“Markets are still pricing in rate cuts at the December meeting, though the probability of a 50-basis-point cut has dropped to 31 per cent following this data,” said Andrew Dicapua, senior economist at the Canadian Chamber of Commerce, in a note.

Dicapua is still predicting a 50-basis-point cut in December, based on the premise that third quarter GDP numbers set to be released next week will show Canada’s economy weakened. Economists from the Canadian Imperial Bank of Commerce and the Royal Bank of Canada are in agreement.

However, Bank of Montreal chief economist Douglas Porter said that barring terrible a job numbers report, the central bank will most likely opt for a cut of 25 basis points for its last decision this year.

“This heavy result should take some more steam out of the call for another 50-basis-point rate cut from the Bank of Canada in December,” Porter said, in a note. “We have been in the 25-basis-point camp from the start and this report only reinforces that expectation, along with evidence that housing is