CIBC Private Wealth
October 16, 2024
Money Economy Professionals Commentary NewsMorning Market Brief
Statistics Canada reported that Canada’s annual inflation rate fell to its lowest level since February 2021 in September. The decline pulled Canada’s inflation rate below the Bank of Canada’s (BoC) target, immediately raising market expectations that the BoC could cut interest rates by more than 25 basis points (bps) at its next meeting. The BoC has already started lowering interest rates to help stimulate economic activity, but this data suggests even more rate cuts might be needed.
- Canada’s annual inflation rate declined to 1.6% in September, the lowest since 2021. This was down from the 2.0% rate in August and below economists’ expectations of a 1.8% rate, based on a survey by Bloomberg.
- September’s decline was driven by a fall in gasoline prices, which declined by 10.7% year-over-year compared to a 5.1% drop in August. Shelter prices eased over the month. Conversely, food price growth accelerated slightly in September compared to August.
- The BoC’s two preferred core inflationary measures remained above 2% in September, suggesting relatively broad-based price pressures. The median rate was 2.3%, while the trim rate was 2.4%.
- The sharp drop in headline inflation and weak economic conditions will likely keep the BoC on pace to cut interest rates at its next meeting. After the announcement, markets raised bets on the possibility of a 50-bps rate cut from the BoC.
Falling inflation and lower interest rates are helping to loosen financial conditions and easing the pressure on many Canadian households. Still, the impact of tight financial conditions persists, which is weighing on overall economic activity. In response, the Canadian economy needs some support. The BoC makes its next interest-rate announcement on October 23. Economists currently expect the BoC to cut interest rates for a fourth consecutive time.
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