Two 50 bps rate cuts coming this year: What economists say about the latest inflation numbers
Inflation in September rose 1.6 per cent, the slowest year-over-year increase in more than three years and well below the Bank of Canada‘s target of two per cent.
The consumer price index (CPI) reading is the last major piece of data before the central bank’s next interest rate announcement on Oct. 23.
Here’s what economists and analysts are saying about the latest inflation numbers and what they mean for the central bank and interest rates.
Charles St-Arnaud, chief economist with credit union Alberta Central, said the number of components in September’s CPI that increased by more than five per cent fell to 11 per cent, the lowest level since September 2020 and down from 13 per cent in August.
“The decline in the share of components rising by five per cent suggests less extreme upside price pressures in inflation,” he said in a note.
Looking at the monthly inflation data — CPI contracted 0.4 per cent in September — St-Arnaud said it likely puts the three-month annualized change close to the bottom of the Bank of Canada’s target range.
“Overall, the Bank of Canada will welcome today’s report as it confirms that inflation continues to ease,” he said. “We believe the BoC should accelerate the return to a more neutral monetary policy, especially considering the lacklustre economy and the lack of inflationary pressures.”
St-Arnaud expects the central bank to cut its rate by 50 basis points next week and at the next, and final, meeting of the year in December, and then by 25 basis points in January to bring its benchmark lending rate to three per cent, and close to neutral rate territory.
“Underlying pressures remained sticky,” Karl Schamotta, chief market strategist at Corpay Inc., said in a note.
Core inflation, the average
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