Slow Inflation In Canada

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Slow Inflation In Canada

Slow Inflation In Canada Bolsters Odds Of Early Rate Cut

In January, the annual inflation rate in Canada dropped to 2.9% while the core price measures also went down. This has increased the odds of early rate cuts from the Bank of Canada.

According to economists, this is the first instance in almost seven months that the inflation rate has dropped under 3%. As a result, the money market now believes there's a 58% chance of an April rate cut. Before the release of inflation data, the odds of rate cuts were near 33% only.

The next meeting for the Bank of Canada is scheduled for 6 March. According to Corpay's market strategist, any further decline in inflation will mean a higher chance of an April rate cut.

Core Measures Hint At Low Inflation

The Bank of Canada uses a total of 3 measures to gauge the inflation level in the country. Out of these 3, around two show that the inflation has decreased significantly.

The slowdown in inflation can be seen in different core measures and categories. As a result, the Bank of Canada has all the reasons not to hike the interest rate.

Just a month ago, the BoC made it clear that the topic of discussion has now shifted to how long (duration) they need to keep the current levels of interest rate. This message was necessary as the BoC didn't mention anything that rules out the possibility of a rate cut.

Considering that the BoE has a severe chance to think about rate cuts, it makes sense.

According to BoC, the headline inflation in the country will likely stay close to 3% during H1 2024. By the end of 2024, Canada's inflation will drop to around 2.5%.

It will become an exciting development if the inflation trend seen in Canada is also translated into the USA. In that case, it will become a race between the Fed and the BoC (which bank is the first to cut rates!)

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