Markets brace for the Bank of Canada's next move amid rising uncertainty
Canada’s latest inflation reading has prompted a mixed response from economists, with most still expecting the Bank of Canada (BoC) to deliver a rate cut next week, though the case has become less certain after stronger-than-expected price data.
Headline inflation rose to 2.4% year over year in September, up from 1.9% in August, driven largely by a smaller decline in energy prices and persistent strength in food costs. The BoC’s preferred core measures—CPI-trim and CPI-median—hovered slightly above 3%. Despite this, several economists argued that underlying pressures remain contained and consistent with the central bank’s 1%–3% target range.
Derek Holt, vice president and head of capital markets economics at Scotiabank, said core inflation readings “remain good enough for the Bank of Canada to cut next week when properly evaluated in terms of month-over-month trends and breadth.” He added that the data “were likely overstated by mechanistic seasonal adjustments that may not be appropriate.”
At CIBC Capital Markets, senior economist Andrew Grantham said that while headline CPI accelerated by more than expected, “core measures of inflation were just subdued enough to support a further 25-basis-point cut.” He noted that weak GDP growth and sluggish business sentiment strengthen the case for additional easing.
Doug Porter, chief economist at BMO Economics, described the inflation surprise as making the BoC’s decision “a bit more interesting next week than previously expected.” He said that while his team remains on the dovish side, “given today’s setback for core, we’ll stay there for now,” suggesting the data might delay rather than derail another rate cut.
Charles St-Arnaud, chief economist at Alberta Central, said signs of “stickier than expected” inflation could raise concerns for policymakers but added that “growth is expected to be subdued” and that his base case still assumes a 25-basis-point reduction.
Royce Mendes of Desjardins Capital Markets said that after a review of the data, “a few volatile categories drove the headline surprise.” Given the BoC’s focus on underlying inflation, he said central bankers “will choose to cut rates again next week,” citing continued economic weakness.
Abbey Xu of RBC Economics said inflation “continues to run above the Bank of Canada’s 2% target, but that was also true when the central bank cut the overnight rate in September.” She expects one more cut next week, which would leave the overnight rate at 2.25%, the lower end of the BoC’s neutral range.
TD Bank’s Andrew Hencic shared that view, saying “the Bank of Canada should still have room to deliver another cut,” given an economy “with ample slack” and market pricing that continues to reflect expectations for easing.
Michael Davenport at Oxford Economics also expects another 25-basis-point reduction, noting that “underlying inflation remains contained” even as the economy struggles to grow. He added that this level will likely mark the bottom of the rate cycle as policymakers weigh trade uncertainty and upcoming fiscal stimulus.
Matthieu Arseneau of National Bank of Canada said the decision “is certainly more complicated following this report,” but he continues to “favor accommodation” given weak business confidence and tariff uncertainty.
While economists differ on timing, most agree that the BoC still has scope to ease policy, with inflation broadly within target and the economy showing limited momentum heading into the final quarter.
