Economists and experts say the Bank of Canada is more likely to accelerate its easing cycle after September’s inflation figures.
On Tuesday, Statistics Canada reported September’s consumer price index (CPI) rose 1.6 per cent compared to the previous year. The figure marked the slowest annual pace of inflation since February 2021 when it reached 1.1 per cent.
In an interview with BNN Bloomberg Tuesday, Charles St-Arnaud, the chief economist with Alberta Central and former economist at the Bank of Canada, said all the data is “showing that inflation is not an issue anymore here in Canada.”
“I think this morning’s inflation number has really solidified the case for the Bank of Canada to cut by 50 basis points next week,” he said
“We saw a decent deceleration in headline inflation, but we also see when we look under the hood in terms of some of the components that the Bank of Canada has been talking about for some years, if we look at the momentum in price pressures (it is) relatively low, we also see the breadth of inflation pressures coming down again.”
CPI data from September will be the last major piece of economic data the Bank of Canada will consider ahead of its interest rate decision on Oct. 23. St-Arnaud noted that while the central bank has stated the neutral interest rate is between 2.25 per cent and 3.25 per cent, he thinks it is likely at the higher end of that range.
He added that he thinks the central bank will likely want to bring its key policy rate lower “rapidly and then take a pause and better evaluate what’s the impact on the economy.”
“What is clear right now is that the Canadian economy with the weakness we have in growth and… even if we include last week’s employment report, the labour market is not faring that well,” St-Arnaud said.
“So, it kind of signals that the economy doesn’t need a restrictive monetary policy. So going back to neutral rapidly would make a lot of sense.”
Tu Nguyen, an economist at RSM Canada, said in a statement to BNNBloomberg.ca Tuesday that she sees more rapid rate cuts given the most recent inflation figures.
“Canada’s consumer price index falling below two per cent increases the odds of a 50-basis point rate cut from the Bank of Canada next week,” she said.
“It’s clear that the Bank of Canada is well behind the curve when it comes to rate cuts given that inflation has returned to target and growth has been sluggish this year. While the Bank has favoured the slow and gradual path, the data might convince them to speed up as the main concern has shifted from price stability to jobs and growth.”
Geoff Phipps, a portfolio manager and trading strategist at Picton Mahoney Asset Management, said in a statement to BNNBloomberg.ca that the latest inflation figures will likely spur the Bank of Canada to “look even farther behind the curve” as inflation has fallen below its two per cent target.
“The Canadian economy appears to be diverging from a fairly resilient U.S. economy. As such, the BoC (Bank of Canada) is likely required to take a much more aggressive approach in rate normalization as compared to the Fed (U.S. Federal Reserve),” he said.
Nguyen also noted the importance of understanding that although the rate of price increases has eased, prices are “permanently higher and not going back down.”
Shannon Terrell, a NerdWallet Canada spokesperson and financial expert, said in a statement to BNNBloomberg.ca Tuesday that it’s important to look at the larger picture regarding price increases.
“While annual inflation has cooled, the cumulative impact is staggering. Over just three years, rent and grocery prices have ballooned by nearly 21 per cent apiece — costs that are sure to influence shopping trends as we draw ever closer to the holiday season,” she said.
With files from The Canadian Press.