Canadian banks prepare to lower interest rates tomorrow as economic slowdown exceeds inflation
Statistics Canada reported Tuesday that headline inflation rose 1.9 per cent in August from 1.9 per cent a year ago, up from 1.7 per cent in July, but still below expectations from economists. Since July, prices have fallen by 0.1%, while core inflation has dropped from 2.5% to 2.4%.
More importantly, the improvement of the preferred core measure of Bank of Canada’s preferred (designed to divest volatile components) has been improved. The CPI-Trim rate fell by 0.1 percentage point to 3.0%, while the CPI-Median remained at 3.1% for the third consecutive month.
Andrew Hencic of TD Economics said the report showed “momentum in the right direction” which had a smaller impact on higher energy prices.
Douglas Porter, chief economist at BMO, described it as a “low theatre event” and noted that the critical inflation increased “taming 0.2% m/m (or less)” in the term “seasonally adjusted.”
Cut rate has been priced, and future actions are still in play
This morning’s CPI release is the last major data point before the Canadian bank’s exchange rate decision tomorrow.
Derek Holt of Scotiabank believes there is a “very high standard” for CPI release, adding that it shouldn’t. He said the bank’s decisions have been progressing, and core tables such as CPI-TRIM and CPI-MEDIAN remain their key guide. He added that central banks are more focused on forward-looking risks and trends than a month of data.
Economists often view the decline in core inflation as a secondary factor, but agree that Canadian banks will lower interest rates tomorrow in the broader economic context.
Hencic said the bank had room to cut meetings tomorrow, citing increased unemployment and unemployment. Porter also said the BOC “reduces tax rates under tomorrow’s decision,” although he noted that the trend in core inflation will help shape discussions around other moves.
“The core short-term trends, along with the recent decline in employment trends, have alleviated the situation for further interest rates,” Porter wrote. “However, we suspect that the bank will continue to take one step at a time, limited by the 3%/y trend of some core measures, and the possibility of headline inflation, will eventually become popular,” Porter wrote. [sic] Temporarily in next month’s report. ”
While most economists expect to cut 25 benchmarks tomorrow, CIBC’s Andrew Grantham went further, predicting another layoff at the October meeting. He noted that prices have grown bigger and weaker after the retaliatory tariffs lifted earlier this month, adding that core inflation should continue to cool in the coming months.
The bond market has made great strides towards data. Canada briefly soared to 2.7% after five years of government release, before returning to 2.67%, with little change from the Open.
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Last modified: September 16, 2025
