Economists say the latest Canadian inflation figures are unlikely to discourage the Bank of Canada from lowering interest rates at its next meeting but could influence the size of a cut.
Canada’s consumer price index (CPI) rose two per cent in October on an annual basis, according to figures from Statistics Canada released Tuesday, rising from a 1.6 per cent increase a month earlier. The Bank of Canada’s final interest rate decision of the year is scheduled to take place on Dec. 11.
Tiffany Wilding, managing director and economist at PIMCO, said in an interview with BNN Bloomberg Tuesday that despite the month over month increase, Canadian inflation is significantly lower compared to the height of the pandemic.
“The outlook remains intact for the Bank of Canada to continue to reduce interest rates and bring policy back into more normal territory. I do think today’s report probably reduces the likelihood that they cut another 50 basis points,” she said.
“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.”
RBC Economist Abbey Xu said in a report Tuesday that the CPI-median and CPI trim measures, which are the central bank’s preferred core measures, surprised to the upside but remained within the one to three per cent range.
Xu also noted that the central bank is data dependent and will see another labour market report ahead of its next 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.
Tu Nguyen, an economist with RSM Canada, said in a statement to BNNBloomberg.ca that based on the data and the fact that the economy is in a state of excess supply, she expects inflation to stay around target for the “upcoming months.”
“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.