Economists unanimous on interest rate cut after latest inflation numbers

The Bank of Canada in Ottawa. Photo by Justin Tang/The Canadian Press files

Article content

The slowing pace of decline in gasoline prices was the biggest contributor to Canada’s inflation rate rising to 1.9 per cent in August, Statistics Canada said Tuesday, while lower prices for travel tours and fresh fruit balanced acceleration in the all-items consumer price index (CPI).

Article content

Excluding food and energy, CPI rose by 2.4 per cent in August, down from 2.5 per cent in May, June and July.

Article content

Article content

Article content

Here’s what economists think about the latest inflation numbers and their impact on the Bank of Canada’s next interest rate announcement on Sept. 17.

Article content

Article content

CPI ‘didn’t matter, but didn’t hurt either’: Scotiabank

Article content

“First, ignore headline CPI,” Derek Holt, vice president and head of capital markets economics at Bank of Nova Scotia, said in a note.

Article content

He said the elimination of the consumer carbon tax earlier this year distorted the measure and will depress year-over-year headline CPI numbers until next spring, “when it should bounce higher once the data starts comparing to a year-ago starting point after April’s carbon tax change.”

Article content

Holt said August’s core inflation numbers “cemented” a rate cut by the Bank of Canada on Wednesday, but that wasn’t always the case. Until the beginning of September, markets spent the year “trapped in a cycle of pushing out cut expectations and getting disappointed in serial fashion,” he wrote.

Article content

Holt said the facts changed “relatively recently,” motivating Scotiabank to alter its long-held call that the central bank would pause rates.

Article content

“Reciprocal tariffs are gone. The U.S. job market dramatically weakened, including massive downward revisions that raise doubts about U.S. resilience and what it means to Canada’s economy. The Canadian job market suddenly began souring. GDP disappointed despite strength in the domestic economy and tracking for Q3 GDP is looking soft, which adds to modest slack,” Holt wrote.

Article content

Article content

Article content

‘No ninth-inning drama here’: BMO Economics

Article content

The latest report was “mostly a low-drama affair,” Douglas Porter, chief economist at BMO Capital Markets, said in a note, with major measures of inflation rising a “tame” 0.2 per cent or less on a seasonally adjusted basis.

Article content

“That pace won’t cause the Bank of Canada much stress, thus keeping them on track for a rate cut at tomorrow’s decision. The milder underlying short-term trends in core, alongside the recent weakening in employment, set the table for further rate relief down the line.”

Article content

Porter said gasoline costs are “less friendly” as they fell 12.7 per cent year-over-year in August compared to a 16.1 per cent drop in July, but noted that pump prices have since moved higher and will “juice” headline inflation well above two per cent next month.

Article content

Rent remains “the single biggest driver of overall inflation,” he said, although it has cooled from 5.1 per cent to 4.5 per cent year-over-year and “seems headed lower.”

Article content

On the trade war front, Porter said goods excluding energy and groceries “eased a tad” to a 1.7 per cent year-over-year pace compared to two per cent in July.