Canadian inflation is being tamed rapidly, sparking fears that the economy will cool and require stimulus soon. Statistics Canada (Stat Can) data shows the Consumer Price Index (CPI) annual growth fell sharply in September. The slowdown was primarily the result of gasoline, with inflation showing little progress when excluded. However, experts still see this clearing the way for the central bank to make a 50 basis point (bp) cut to its key interest rate in a few days.
Canadian Inflation Slowed Sharply Due To Falling Gas Prices
Canadian consumer price growth slowed significantly in the latest report. Headline CPI fell 0.4 points to 1.6% in September, marking the slowest annual growth since February 2021. The decline was primarily attributed to gasoline prices, providing a large influence on the report.
Excluding gasoline emphasizes the oddly large weight it represents these days. CPI excluding gasoline came in at 2.2% for September, unchanged from the previous report. Gasoline prices are expected to make a mild recovery by the next report, making the downward pressure short-lived.
Canadian Headline Inflation Slows To Lowest Growth In Years
Annual growth of the Canadian headline consumer price index (CPI).
Source: Stat Can.
Canadian Core Inflation Is Unchanged, But A 50 bp Rate Cut Is Still Expected
The BoC-preferred Core CPI excludes the most volatile components to minimize base effect influences. When this is done, it reveals virtually no progress and slightly elevated inflation. Annual growth of core CPI was unchanged in September for both the Core CPI trim (2.3%) and excluding food and energy (+2.4%) measures. The change (or lack of) emphasizes how much of the slowing inflation is related to volatile components, presenting a re-inflation risk.
The market doesn’t see the BoC paying much attention to their preferred measure later this month. Experts still expect the central bank to embrace accelerated easing, with a double cut at the next meeting (50 bps). However, they’re a little more hesitant about the forecast than they were before today’s data.
“It’s a close call, but we suspect that the big improvement in inflation, the still-high unemployment rate, and the still-sour consumer and business sentiment will be enough to prompt the Bank of Canada to opt for a 50 bp rate cut later this month,” explains Douglas Porter, chief economist at BMO.
Adding, “After all, the BoC has dovishly signaled that they are now more concerned about downside risks to the economy and the possibility that inflation may drop too low.”
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