Yesterday’s inflation report showed Canadian CPI rising 2.4% year-over-year, slightly above market expectations of 2.2%, and just above CIBC’s forecast of 2.3%.

While the number came in a bit hotter than expected, it wasn’t enough to completely derail expectations for further rate cuts by the Bank of Canada (BoC).

Market Reaction

The higher inflation reading weighed on the Canadian stock market, as investors worried that persistent inflation could mean interest rates stay higher for longer.

However, inflation remains relatively low and largely in line with the BoC’s target range, leaving room for the central bank to continue easing monetary policy.

As one major Canadian bank noted:

“We think that core measures of inflation were just about subdued enough, and the economy is certainly weak enough, to still justify a further 25bp cut from the Bank of Canada next week.”

What the Odds Are Saying

As of October 21st, money markets are pricing in a 77% chance of a quarter-point rate cut later this month — down from 87% before the inflation report, according to LSEG data.

Despite the modest pullback in rate-cut expectations, consensus across major banks still points to further easing through 2025, with BMO standing out as the only major institution expecting additional cuts into 2026.

Outlook

The latest data paints a picture of an economy that’s cooling but not collapsing. Inflation may be a touch sticky, but with growth sluggish and households feeling the squeeze from higher borrowing costs, the BoC is still likely to cut rates in the near term.

All eyes now turn to next week’s rate announcement for confirmation that the easing cycle remains on track.