Canadian Inflation Jumps in September, Rate Cut Hopes Fade
Canada’s inflation accelerated in September, rising above the Bank of Canada’s (BoC) 2% target for the first time in six months and reducing expectations for another rate cut later this month.
Headline CPI increased 2.6% year-on-year, beating the market forecast of 2.3%, while monthly inflation rose 0.1%, rebounding from a 0.1% decline in August. The surge was mainly driven by higher transportation and food prices.
The average of the BoC’s two 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%, signaling that price pressures persist across key sectors of the economy.
BoC Faces Tough Decision Ahead of October Meeting
The hotter CPI data adds pressure ahead of the Bank of Canada’s October 29 policy meeting. Markets had widely priced in another 25-basis-point rate cut after the September reduction to 2.50%, but following the inflation surprise, rate cut odds dropped to 77% from 87%.
While weak growth and rising unemployment — now at 7.1% — continue to support a looser stance, the BoC may pause further easing until it sees clearer signs that inflation is stabilizing. Canada’s economy contracted 1.6% in Q2, as exports to the U.S. fell amid ongoing tariff concerns.
Loonie Stable, Stocks Slide
The Canadian dollar (USD/CAD) traded steady at 1.4027, down 0.10% on the day, showing limited reaction to the CPI data. The loonie remains under pressure, marking four consecutive weekly losses against the U.S. dollar, down 2.1% over that period.
Meanwhile, the S&P/TSX Composite Index fell 474 points (1.5%) to 29,942, reversing earlier gains as investors reassessed the outlook for monetary policy and inflation.