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There is room for the Bank of Canada to accelerate its pace of interest rate cuts.

Latest inflation data in Canada suggests that there is plenty of room for the economy to accelerate before the Bank of Canada should become worried about price pressures again.
And this means that there is room for the Bank of Canada to accelerate its pace of interest rate cuts in order to unlock some of that potential.
Inflation was only 1.6% in September.
That&#8217;s below the 2% target.
And even though some of the deceleration was due just to lower gasoline prices, we did also see some softness in prices within areas that are linked to consumer spending, which includes clothing and air transportation.
So we think that the Bank of Canada ahead will conduct two 50-basis point cuts to their overnight rates.
And that the overnight rates will reach 225 by the middle of next year.
These lower interest rates should help accelerate the economy, bring the unemployment rate down, and to make sure that inflation bring the unemployment rate down, and to make sure that inflation doesn&#8217;t actually undershoot their 2% inflation target by 2025.

What do the latest inflation numbers mean for the path of rate reduction?

Andrew Grantham

Senior Economist

CIBC