Panel: Canada's 'comforting' October CPI report
Economists say an October slowdown in inflation was expected, given declining oil prices and elevated interest rates, and some are calling for central bank rate cuts to begin next summer based on the latest data.
"We expected a big cooling in headline inflation partly because of the drop in gas prices, and partly because of what we saw a year ago where prices were running at a stronger pace,” Robert Kavcic, senior economist at BMO Capital Markets, told BNN Bloomberg in a Tuesday interview.
Statistics Canada data released Tuesday showed the consumer price index increased 3.1 per cent in October from a year ago, softer then the 3.8 per cent increase in September.
Kavcic pointed to the gradual deceleration in core inflation data, which strips out volatile costs of food and energy.
“We’re seeing those measures run anywhere from the low two per cent range to the mid three per cent range," he said.
That should be an encouraging sign for the Bank of Canada, suggesting central bank rate hikes are taking effect, he added.
“We’ve seen enough evidence in the economic data to suggest that policy is very much tight enough at these levels,” he suggested.
The Bank of Canada's benchmark overnight lending rate has been held steady at five per cent for the central bank’s past two meetings.
Kavcic believes the Bank of Canada is likely done hiking rates, but he anticipates rates will remain on hold for several months.
It’s premature for (The Bank of Canada) to turn dovish and to start thinking about rate cuts in the next six to eight months. That would probably be a story the second half of 2024 at this point,” he said.
Economists agreed that rate cuts are likely to ramp up in the second half of next year due to a possible downturn in the labour market.
David Doyle, head of economics at Macquarie Group, told BNN Bloomberg in a Tuesday interview that he expects the first rate cut to come in June or July of next year, following by further easing.
“We would expect more significant easing in the second half of the year, due largely to the rise in unemployment that we anticipate,” said Doyle.
Doyle suspects the Bank of Canada is done hiking rates, and he said the central bank could cut rates before seeing its two per cent inflation target if unemployment continues to rise.
‘NO QUESTION’ ECONOMY IS SLOWING
Jean-François Perrault, chief economist at Scotiabank, told BNN Bloomberg that he is also anticipating rate cuts next summer.
“We’re expecting that next summer, and then about 100 basis point (cuts) between next summer and the end of the year,” Perrault said in a Tuesday television interview.
Perrault said inflation trends have surprised to the upside for most of the past year, but he believes signs of a slowing Canadian economy cannot be ignored.
"We are clearly at a point where interest rates are hurting, there’s no question about that, the economy is slowing, there’s no question about that,” he argued.
CIBC Capital Markets economist Katherine Judge shared that sentiment.
“A weak economic backdrop should work to limit prices further in these measures, and could allow the (Bank of Canada) to start cutting rates as early as Q2 next year,” she wrote in a note on Tuesday following the inflation data release.
Judge added that the consumer price index trim and median both decelerated, suggesting that price increases are becoming more concentrated, namely in mortgage interest costs.
The bulk of inflation was driven by mortgage interest rates, a direct effect of monetary policy. Excluding these payments, inflation is down to 2.2 per cent, which RSM Canada economist Tu Nguyen noted is extremely close to the Bank of Canada's target inflation rate.
Looking ahead, she also believes price pressures will continue abating.
“Disinflation is here, and no more rate hikes are required,” she wrote in a Tuesday statement.