Cooling inflation keeps Bank of Canada on track to keep rates on hold despite lingering housing pressures
Although inflation cooled less in October than economists expected, expectations for keeping interest rates unchanged in December were further strengthened this morning. Statistics Canada reported that overall CPI fell back to 2.2% year-over-year, slightly above the consensus of 2.1% and down from 2.4% in September.
The Bank of Canada’s preferred core indicator also edged lower, with the adjusted CPI down 0.2 percentage points and the median CPI down 0.1 percentage points.
Douglas Porter, chief economist at BMO, warned that the softer headline data did not tell the full story. “On the surface, this appears to be a dovish and friendly report, with both headline and median inflation declining,” he wrote, noting that much of the relief, particularly from gasoline and food, was already expected. “However, the new news is not good, driven by continued strength in insurance costs and sharp increases in mobile phone bills.”
Porter added that most underlying inflation measures remain “just above” the central bank’s comfort zone of around 2.5%. “In other words, this report is just another reason to believe the central bank will take a wait-and-see approach in December,” he wrote.
Scotiabank’s Derek Holt was more blunt, arguing that the details in today’s report are “not important” to policy at this stage. “They have [the Bank of Canada] Make it clear that they will be absent for at least the next few meetings,” he wrote.
CIBC’s Andrew Grantham agreed, adding that the outlook would extend beyond December. “We continue to forecast no change in overnight rates through the end of next year,” he noted.
The market seemed to take the data in stride, with Canada’s 5-year government bond yield almost unchanged from the opening price of 2.75% throughout the morning.
Consumer Price Index (CPI) 12-month change
and consumer price index excluding gasoline
mixed packet
While headline and core indicators eased somewhat, driven by lower grocery and gasoline prices, some components continued to show resilience, as noted above.
Homeowners’ home and mortgage insurance increased 6.8% year over year, rent inflation accelerated from 4.8% to 5.2%, and property taxes (priced annually in October) increased 5.6%. Passenger car insurance premiums also rose 7.3%, and cellphone service prices saw their first annual increase in more than two years.
TD Bank economist Andrew Hencic said the underlying inflation picture is equally uneven. While the Bank of Canada’s preferred core indicators (adjusted CPI and median CPI) cooled in October, some older exclusion-based indicators moved higher. He noted that on a three-month annualized basis, the same pattern holds: “Some are warming, others are cooling.”
Hunsik added that the broader policy implications remain largely unchanged. “This month’s report does not change the picture much,” he wrote. He argued that inflation was unlikely to fall below the lower end of the target range given ongoing supply-side disruptions, but that inflation was also “unlikely to accelerate sharply” amid weak domestic demand. The market has reflected this view, with the probability of another interest rate cut in April approaching 30%.
What will it take to get the Bank of Canada to stop sitting on the sidelines?
With inflation broadly in line with expectations but some components still overheated, economists say the threshold for further easing will only rise. CIBC’s Andrew Grantham noted that the economic slowdown in October was not enough to change the outlook.
“It will take longer for price pressures to ease, coupled with signs that economic growth is deteriorating again, for the Bank of Canada to stop waiting on the sidelines,” he wrote.
Desjardins’ Randall Bartlett took a similar view, noting that many inflation measures remain in the upper half of the central bank’s operating range of 1% to 3%. “With a range of inflation measures remaining elevated and the economy still expected to emerge from recession in the third quarter of 2025, there is currently little pressure on the central bank to continue cutting interest rates,” he wrote. “We maintain our view that the Bank of Canada will remain on hold next year.”
These assessments echo the outlook shared by most major banks in a recent CMT article on their forecasts for the Bank of Canada policy rate.
It is widely believed that the easing cycle may be over, with overnight rates expected to remain at the current 2.25% by the end of 2026. Scotiabank is a notable exception, with the bank’s next move expected to be a rate hike in the second half of 2026.
Visited 1 times, visited 1 time today
Andrew Hencic Bank of Canada Bank of Canada interest rate forecast BoC BoC interest rate forecast CPI inflation derek Holt Douglas Porter inflation Randall Bartlett
Last modified: November 17, 2025
