A customer browses the aisles of a grocery market in Toronto.Frank Gunn/The Canadian Press
Canada’s inflation rate accelerated by more than expected in September, potentially casting doubt on the Bank of Canada’s interest rate decision next week.
The Consumer Price Index rose 2.4 per cent in September on an annual basis, up from August’s 1.9-per-cent pace, Statistics Canada said Tuesday. Financial analysts were expecting an inflation rate of 2.2 per cent.
Heading into Tuesday’s CPI report, the Bank of Canada was widely expected to cut its benchmark policy rate on Oct. 29. The central bank resumed cutting in September – the key interest rate is now 2.5 per cent – after three consecutive holds. The Bank of Canada had been on pause as it assessed the fallout from hefty U.S. tariffs.
But in September, the bank’s governing council decided that growth and employment concerns outweighed inflation risks from tariffs, leading them to lower borrowing costs.
Bank of Canada finds downbeat businesses and consumers ahead of rate decision
Speaking to media last week, Bank of Canada Governor Tiff Macklem said the economic outlook for the rest of the year was tepid.
“It’s going to be growth, but it’s going to be soft growth. It’s not going to feel very good, and it’s certainly not going to be enough to close the output gap,” Mr. Macklem said.
The Canadian economy shrank at an annualized rate of 1.6 per cent in the second quarter as exports to the United States plummeted. The unemployment rate, meanwhile, has risen to 7.1 per cent as companies get cautious on hiring.
Private-sector forecasters expect the economy to eke out growth in the third quarter, but continue to struggle as U.S. tariffs weigh on Canadian exports. The Trump administration has hammered a number of Canadian industries with duties, including steel, aluminum and autos.
On Monday, the Bank of Canada published surveys of businesses and consumers that reflected a downbeat mood from both camps. For instance, most companies do not expect to increase the size of their workforce over the next year, according to survey results.
Heading into Tuesday’s CPI report, investors were pricing in a 75-per-cent chance that the BoC cuts rates by a quarter-point next week, according to Bloomberg data.