Canada's inflation remains manageable, analysts say
Canada’s inflation rate saw a modest rise in October, but economists say it’s unlikely to derail the Bank of Canada’s anticipated rate cut next month.
The Consumer Price Index (CPI) increased by 2% on an annual basis, up from 1.6% in September, according to Statistics Canada’s latest report. Despite the decrease, inflation remained within the central bank’s target range.
October’s inflation data isn’t expected to stop the Bank of Canada from cutting interest rates next month, although it may influence how deep the cut will be, economists said.
Tiffany Wilding, managing director and economist at PIMCO, told BNN Bloomberg that the inflation uptick doesn’t derail the case for rate normalization.
“The outlook remains intact for the Bank of Canada to continue to reduce interest rates and bring policy back into more normal territory,” Wilding said. “I do think today’s report probably reduces the likelihood that they cut another 50 basis points.”
Wilding highlighted Canada’s relative economic stability
“We also had a pretty decent retail sales report, so 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.
Core inflation metrics, which the central bank closely monitors, surprised slightly on the upside but stayed within the acceptable range of 1-3%, according to RBC economist Abbey Xu. These figures, combined with another labour market report due before the Bank of Canada’s December 11 meeting, will likely shape the final rate decision.
“Our base-case assumes an additional 50-basis-point cut to the overnight rate by the Bank of Canada in December,” Xu said.
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Tu Nguyen, an economist at RSM Canada, said the economy’s current state of excess supply provides room for the Bank of Canada to act without major inflationary risks.
“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,” Nguyen said, adding that she expects inflation to hover near target levels in the coming months.
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