Inflation stats may have tipped the balance for the central bank's committee
Canada’s Consumer Price Index inflation ticked higher to 1.9% year‑over‑year in August, up from 1.7% in July, according to Statistics Canada.
Excluding gasoline, inflation was 2.4%, down from 2.5% in each of the prior three months. Gasoline prices still fell compared to a year earlier, but by less (−12.7% compared with −16.1%), which helped push the headline figure up. Monthly on a not seasonally adjusted basis, CPI fell 0.1%, while seasonally adjusted it rose about 0.2%.
Core inflation remains well above target with the CPI‑trim down slightly to 3.0% year-over-year (from 3.1% in July), CPI‑median held steady at 3.1%, and the CPI excluding food & energy also ticked down to 2.4%. Other core variants like CPIX (excluding eight volatile components and indirect taxes) were around 2.6%.
But how are these stats likely to impact the Bank of Canada’s interest rate decision today (9/17) in the view of economists from Canada’s big banks?
RBC’s Nathan Janzen & Claire Fan believe this CPI reading makes the BoC’s decision a “closer call.” They expect the Bank to narrowly opt for a hold at the upcoming meeting, rather than a cut. RBC has previously said that cuts could be over for now.
They note that although headline inflation is biased downward by things like energy price declines and the removal of the carbon tax on gasoline, there are still “broader inflation concerns” that will temper any move to ease.
TD Economics’ Andrew Hencic shared a view that is somewhat more favorable towards a rate cut, noting that while headline CPI rose to 1.9% in August, that was below expectations for 2.0%.
Core inflation remains elevated, but trends are cooling. TD sees room for the BoC to cut interest rates in the meeting, in light of weakening momentum in the economy, including indicators like unemployment and exports.
They maintain the view there may be two cuts this year, assuming inflation does not rebound and economic softness persists.
BMO’s Doug Porter is also leaning toward a cut, calling the CPI result “low drama” and viewing the report as “acceptable,” not too strong to block easing. Most core inflation measures showed moderate monthly growth (seasonally adjusted), and the core measures are high but not accelerating. Based on this, he thinks the BoC is “on track” for a rate cut this time.
CIBC’s Andrew Grantham sees inflation as “largely unthreatening” in August. Combined with recent labour market softness, the CPI data makes a 25 basis‑point cut almost certain in the upcoming BoC decision, with further easing possible in October.
Scotiabank’s Derek Holt, noted that core gauges are soft on a monthly/shorter-term basis and said “I think it cements a cut [today].”
