Canadian Inflation Surprises to the Downside

The Bank of Canada delivered a pleasant surprise when it announced that the country’s inflation rate slowed more than expected in January to 2.9%. That’s down sharply from 3.4% in December and is lower than the 3.3% reading economists were looking for and the 3.2% mark forecast by the Bank of Canada.

Of particular note, this is the first time Canada’s inflation rate has fallen within the central bank’s target range of 1% to 3% since June 2021.

One of the most positive signs was the cooling of food inflation, with food prices climbing just 0.1% from December 2023. That represents the weakest month-to-month increase in almost three years. Food prices are still relatively high but rising more slowly to 3.4%. That’s down from December’s reading of 4.7%.

When Will the Bank of Canada Announce Its First Interest Rate Cut?

The sharp drop in inflation has Bay Street analysts predicting the Bank of Canada could announce its first interest rate cut sooner than expected. In its January Monetary Policy Report, the Bank of Canada said that it didn’t expect the consumer price index (CPI), which measures inflation, to ease to 2.5% until the second half of 2024 and return to its 2% target until sometime in 2025.

The big, unexpected drop in inflation has economists thinking it could hit its 2% target in the third quarter of this year. But, with the downward trend, the Bank of Canada could announce its first interest rate cut even without inflation slowing more than it has.

Before the figures were reported, analysts thought there was just a 33% chance the Bank of Canada would announce its first interest rate cut in April, but after the report was released, the bets for an April rate cut jumped to 58%.

The Bank of Canada’s next policy announcement is on March 8. It is widely expected that the central bank will leave rates at a 22-year high of 5%. It meets again on April 12.

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Canada’s inflation rate slowed much more sharply than expected in January, prompting economists to predict the Bank of Canada will announce its first rate cut sooner than expected. While the central bank is expected to hold interest rates steady when it meets on March 8, it could announce a rate cut as early as April. How will this impact Canadian equities and commodities? Ask the trading professionals at Learn-To-Trade.com.

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