The Bank of Canada’s preferred core inflation measures increased to 2.6% year-over-year on average, from 2.4% in September.
Traders switched from a roughly 50/50 chance of a jumbo rate cut to around one in three.
Pimco Canada’s Tiffany Wilding highlights that the gain in inflation is influenced by energy categories, the jump in annual property taxes, and rent costs. However, she expects that the BoC will opt for a rate cut of 25 basis points rather than the 50 basis points seen in October.
“[The CPI] report removes some of the urgency for the BOC to move back to a neutral stance,” she noted. “However, still subdued inflation (ex-mortgage interest), a negative output gap, and the ongoing weakness in the labour market suggest the BOC is likely to continue to remove its restrictive stance of monetary policy over the upcoming months.”
CIBC economist Katherine Judge still believes that there will be a 50-point cut in December given the slack in the economy, although she stresses that it’s a close call and will be informed by the labour market report on December 6.
