Canada’s inflation rate unexpectedly dipped in September to 3.8%. That’s down from 4.0% in August. The 3.8% figure is below the 4.0% figure economists were expecting inflation to come in at.
The cooling of Canada’s inflation was pretty broad based too, with prices falling for some travel-related services, durable goods, and groceries. The latter of course has been a lighting rod for consumer anger. The price for meat, dairy products, vegetables, tea and coffee all decelerated in September. It wasn’t all good news, edible fats and oils, fish, fresh fruit, and bakery products all experienced price increases.
Still, the slowdown is a positive sign after two months of increases. And, while inflation is still running above the Bank of Canada’s 2% target rate, it is well below the 8.1% high from last June.
What Does a Dip in Inflation Mean for the Bank of Canada?
The surprising drop in inflation could mean the Bank of Canada’s unprecedented rate hikes could be over. In fact, after the Statistics Canada data was released, some analysts said the central bank was probably finished raising interest rates for this cycle.
Inflation is a lagging indicator, and the Canadian economy is clearly stagnating. The Bank of Canada has raised interest rates by 4.75% since March 2022, but it typically takes between 12 months to 18 months for the effects to work its way through the economy.
It’s been 18 months since the central bank began raising its key lending rate. And things are going according to plan. The Parliamentary Budget Office (PBO) said it expects the economy to stagnate in the back half of 2023 and first half of 2024. It also expects the Bank of Canada to start cutting rates in the spring.
While inflationary data will continue to be volatile, September’s data should give the Bank of Canada more than enough confidence to hold interest rates when it meets next on October 25.
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Canadian economic data shows that inflation is cooling and the chances of further interest rate hikes is slim. That does not mean the Canadian economy will not be unpredictable.
Unemployment is expected to rise in 2024 and the Bank of Canada’s monetary policy will continue to negatively impact the Canadian economy. How will this impact corporate earnings? Ask the trading professionals at Learn-To-Trade.com.
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