A day before the Bank of Canada is scheduled to make its next interest rate decision, a cut from the central bank remains almost certain, an expert said, following the release of August inflation data from Statistics Canada.
“I think a 25-basis-point cut tomorrow is almost a given,” Charles St-Arnaud, chief economist at Alberta Central and former Bank of Canada economist, told BNN Bloomberg in an interview on Tuesday.
“We’ve had, over the past month, a lot of data that has suggested that the amount of slack in the economy is much bigger than what the Bank of Canada was seeing in the July meeting.”
St-Arnaud’s comments came after StatCan said on Tuesday that Canada’s headline inflation rate, measured by the consumer price index (CPI), ticked higher to 1.9 per cent last month, from 1.7 per cent in July.
Although August marked the fifth straight month that the inflation rate came in below the central bank’s two per cent target, core inflation measures, which strip out more volatile items, have remained elevated, said St-Arnaud.
“That’s where the Bank of Canada’s concern has been for some months now, their preferred measures of core inflation have been either at three per cent or slightly above three per cent for the past five months… it’s at the upper end of the target,” he said.
“However, what is a bit more of a relief for them in the numbers is that the pace of the increase in those prices is a bit more consistent with the inflation target, so when we look at the three-month annualized price change in core inflation, it’s at about 2.5 per cent.”
On its website, the Bank of Canada says it “aims to keep inflation at the two per cent midpoint of an inflation-control target range of one to three per cent.”
St-Arnaud argued that data in recent weeks and months suggesting Canada’s economy is slowing likely convinced the Bank of Canada to cut rates at its upcoming meeting on Wednesday even before Tuesday’s CPI report.
“First we had the GDP (gross domestic product) that contracted by 1.6 per cent, which was bigger than what (the bank) was expecting in their own forecast,” he said.
“We also had another month of weak employment data with a second consecutive month of job losses and a continued increase in the unemployment rate.”
Although certain sectors of the economy appear to have seen a slight rebound from the broad-based weakness in the second quarter of this year, minimal growth is expected through the end of 2025, St-Arnaud added.
“Even though the economy is no longer deteriorating – recent data suggests, for example manufacturing sales yesterday were suggesting a rebound there,” he said, “that doesn’t mean that growth is picking up at the end of the year enough to reduce the amount of slack in the economy.”
