TORONTO (Reuters) – Canada’s annual inflation rate accelerated more than expected to 2.0% in October as gas prices fell less than the previous month, data showed on Tuesday, likely diluting chances of another large rate cut in December.
Market reaction: [CAD/]
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COMMENTARY
DOUG PORTER, CHIEF ECONOMIST, BMO CAPITAL MARKETS
“The fact that inflation backed up a fair bit is not a huge surprise. It was dealing with both an uptick in gasoline prices and very meaty property tax increases.”
“At the margin, this is going to be a bit of a disappointment for the Bank of Canada. Those are fairly meaty increases in core inflation, a move in the wrong direction.”
“The big picture is that the major measures of core are still a little bit uncomfortably away from 2%.”
“We had been leaning that way (for 25 basis points rather than 50 basis points of easing in December) pretty heavily in any event, partly because the prospects of further Fed easing had been dialed back and then of course the Canadian dollar had been suffering and there are some indications that the Canadian dollar might be beginning to stir. We’ve certainly seen it in the housing market.”
“So I actually do think that the prudent course of action would be a 25-basis-point cut and I think this report somewhat strengthens that view.”
ANDREW KELVIN, HEAD OF CANADIAN AND GLOBAL RATES STRATEGY AT TD SECURITIES
“The economy is still characterized by a decent amount of excess supply, so the bank may still feel a rush to get back to somewhere closer to neutral. So this won’t eliminate the possibility of a 50 basis point move in any way, shape or form. However, it is worth noting that they swung from cutting by 25 basis points to 50 basis points on very small changes to the forecast… I think there probably is a little bit of soul searching going on at the Bank of Canada right now.”
“There certainly will be a rate cut in December. Even if the Fed does decide that it wants to take a little bit of a pause in the next meeting or two that shouldn’t impact the Bank of Canada decision to cut or not. This could have implications for the speed of rate cut, however.”
(Reporting by Fergal Smith and Nivedita Balu; Editing by Caroline Stauffer)