Canadian Inflation Rises, Rate Cut Odds Drop
Canadian Inflation Surges in September, Cooling Rate Cut Bets
Canada’s inflation picked up for the first time in six months, rising above the Bank of Canada’s (BoC) 2% target and complicating expectations for another rate cut later this month.
Headline CPI climbed to 2.6% year-on-year in September, surpassing the market forecast of 2.3%. On a monthly basis, inflation rose 0.1%, rebounding from a 0.1% decline in August, driven mainly by higher transportation and food costs.
The average of two key core inflation measures, which exclude food and energy, eased slightly to 3.15% from 3.25% in August but remained above expectations of 3.0% — reinforcing signs of persistent price pressures across the economy.
BoC Faces Dilemma Ahead of October Policy Meeting
The stronger-than-expected CPI data comes ahead of the Bank of Canada’s October 29 meeting, where markets had widely anticipated another 25-basis-point rate cut following September’s move to 2.50%. However, following the inflation surprise, the probability of a rate cut has fallen to 77%, down from 87% before the release.
While weak growth and rising unemployment — now at 7.1% — have justified recent easing, policymakers may pause to assess whether inflationary pressures are becoming entrenched. Canada’s economy contracted 1.6% in Q2, with exports to the U.S. sharply lower amid ongoing tariff headwinds.
Canadian Dollar Holds Steady, Stocks Retreat
Despite the hotter CPI print, the Canadian dollar (USD/CAD) showed little reaction, trading at 1.4027, down 0.10% on the day. The loonie remains under pressure, logging four consecutive weekly losses against the greenback, totaling a 2.1% decline.
Meanwhile, the S&P/TSX Composite Index reversed earlier gains, sliding 474 points (1.5%) to 29,942, as investors weighed higher inflation against the outlook for monetary easing.
