'Too soon to rule out' 50 bps interest rate cut: Economists on Canada's inflation numbers

financialpost.com:

Inflation in October came in at two per cent, back to the Bank of Canada’s target, but accelerating faster than economist predictions of 1.9 per cent year over year and higher than the 1.6 per cent recorded in September.

Statistics Canada’s consumer price index (CPI) report is the last one available to the central bank before its next interest rate decision on Dec. 11.

October’s CPI numbers, along with jobs data for November and third-quarter gross domestic product (GDP), will help steer policymakers on whether to cut rates by another standard 25 basis points or make an oversized 50-basis-point cut.

Here’s what economists think the inflation numbers mean for the Bank of Canada and interest rates.

Gas prices fell less in October than they did in September, but the real culprit behind the higher inflation was shelter, economists Matthieu Arseneau and Kyle Dahms at National Bank of Canada said.

“No fewer than three of the housing sub-components were among the top five contributors to annual inflation: mortgage interest costs (first), rents (second) and property taxes (fifth),” they said in a note.

They said inflation was 0.9 per cent excluding shelter in October, signalling that economic output is nowhere near where it could be.

The Bank of Canada’s preferred measures of inflation are still above target on an annualized basis.

“Does this call into question our view that rates should be brought back to neutral quickly? No,” the analysts said. “It is perfectly normal for inflation to progress in a non-linear fashion and, more importantly, for inflation to react to the economic environment with some lag.”

Overall, they said the economy has been steadily slowing since 2022, while the participation rate in the labour market