Canadian Inflation Drops

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Canadian Inflation Drops

Canadian Inflation Drops To 1.6%, Improves Chances Of Rate Cut

The annual rate of inflation in Canada has further slowed down to just 1.6% in September. This has significantly boosted the odds of a 0.50% rate cut by the BoC next week.

According to the data from Statistics Canada, the weakness in the inflation print was mainly due to a decrease in the oil prices. Over all, this marks one of the lowest readings only seen during 2021.

Boc To Deliver 0.50% Rate Cut

Since the start of 2024, Canadian CPI has been showing signs of easing and has already reached the mid-point of BOC's range (1 - 3%). The higher rates in Canada have also affected business investments and consumer demand.

The BoC has been consistently trimming the interest rates at its last 3 meetings. Each time, BoC delivered a 25 bps rate cut but that could change at the next meeting.

Given the inflation levels and the weak consumer demand, the Bank of Canada may go ahead with a 50 bps rate cut this time. This would help the economic growth and business investment.

Right now, the chances of a 0.50% rate cut have gone up from just 52% to almost 67%. This development happened after the release of the Canadian inflation report.

According to one expert, the Central Bank of Canada will need to take action in order to revive the economy. Also, the BoC can't afford for the inflation to drop too low! Given all of this, it seems that a 50 bps rate cut is the right thing to do at this time.

As of now, the Canadian Dollar (CAD) is at 10-week lows near the 1.3833 against the US Dollar. Now that everyone is talking about an oversized rate cut by BoC, the CAD is expected to move even lower.

If we look at the inflation report by excluding the oil prices, remained unchanged at nearly 2.2% during September.

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