Canada CPI forecast to edge lower in October as markets assess BoC rate cut outlook

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Canada CPI forecast to edge lower in October as markets assess BoC rate cut outlook

Canadian inflation is expected to edge lower in October.
The core CPI is still seen well above the BoC’s 2% goal.
The Canadian Dollar managed to regain some composure this month.

All eyes will be on Monday’s inflation report, as Statistics Canada releases October’s CPI figures. The data will give the Bank of Canada (BoC) a much-needed update on price pressures ahead of its December 10 meeting, where policymakers are widely expected to keep rates steady at 2.25%.

Economists see headline inflation rising 2.1% YoY in October, nearing the BoC’s target after September’s 2.4% reading. On a monthly basis, prices are expected to edge up 0.2%. The bank will also closely monitor its preferred core measure, which experienced a 2.8% YoY increase in September, following a 2.6% increase in August.

Analysts remain uneasy after last month’s inflation pickup, and the risk of US tariffs feeding into domestic prices is adding another layer of uncertainty. For now, both markets and the Bank of Canada appear poised to exercise caution.

What can we expect from Canada’s inflation rate?

The Bank of Canada cut its benchmark rate by 25 bps to 2.25% in October, a move that largely matched what markets were expecting.

At that meeting, Governor Tiff Macklem struck a cautiously optimistic tone. He said policy is now providing “some stimulus” as the economy loses momentum, and although consumption is likely to cool, he stressed that one soft data point wouldn’t be enough to shift the bank’s broader view. Still, he didn’t completely dismiss the possibility of two negative quarters. He also warned that equity valuations look “stretched”, hinting at growing unease beneath the surface.

Senior Deputy Governor Carolyn Rogers echoed that vigilance, noting the Canadian Dollar is still doing its job as a shock absorber and pointing to widening regional contrasts in the housing market. Both she and Macklem acknowledged that financial-stability risks have become part of the conversation again.

For markets, Monday’s headline CPI number will be the first thing they latch onto. But inside the BoC, the spotlight will be on the details, especially the Trimmed, Median, and Common core measures. The first two remain stuck above 3%, a level that continues to worry policymakers, while the Common measure has drifted higher as well, still comfortably above the bank’s target.

When is the Canada CPI data due, and how could it affect USD/CAD?

Markets will be dialled in on Monday at 13:30 GMT, when Statistics Canada releases October’s inflation numbers. Traders are on edge about the possibility that price pressures remain stubborn, keeping the uptrend firmly intact.

A hotter-than-expected print would fuel worries that tariff-driven costs are finally making their way to consumers. That kind of signal would likely push the Bank of Canada into a more cautious stance, at least in the near term. It could also give the Canadian Dollar (CAD) a bit of short-term support, as investors brace for a policy path that hinges increasingly on how trade tensions evolve.

Pablo Piovano, Senior Analyst at FXStreet, notes that the Canadian Dollar has managed to appreciate since its lows earlier this month, prompting USD/CAD to slip back toward the key 1.4000 region. Meanwhile, further gains appear likely while above the key 200-day SMA near 1.3930.

Piovano indicates that the resurgence of a bullish tone could motivate spot to confront the November ceiling at 1.4140 (November 5), ahead of the April top at 1.4414 (April 1).

On the flip side, Piovano points out that a key support lines up at the 200-day SMA at 1.3929, prior to the October floor at 1.3887 (October 29). The loss of this region could spark a potential move toward the September valley at 1.3726 (September 17), seconded by the July trough at 1.3556 (July 3).

“In addition, momentum indicators remain constructive: the Relative Strength Index (RSI) lingers near the 53 level, while the Average Directional Index (ADX) eases toward 25, suggesting a still firm trend,” he says.

(This story has been updated on November 17 at 10:46 GMT due to a last-minute change in the consensus to say that headline inflation is expected to rise 2.1% YoY and to edge up 0.2% MoM in October, not 2.3% and 0.1% respectively, as previously estimated.)

Bank of Canada FAQs

What is the Bank of Canada and how does it influence the Canadian Dollar?

The Bank of Canada (BoC), based in Ottawa, is the institution that sets interest rates and manages monetary policy for Canada. It does so at eight scheduled meetings a year and ad hoc emergency meetings that are held as required. The BoC primary mandate is to maintain price stability, which means keeping inflation at between 1-3%. Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Canadian Dollar (CAD) and vice versa. Other tools used include quantitative easing and tightening.

What is Quantitative Easing (QE) and how does it affect the Canadian Dollar?

In extreme situations, the Bank of Canada can enact a policy tool called Quantitative Easing. QE is the process by which the BoC prints Canadian Dollars for the purpose of buying assets – usually government or corporate bonds – from financial institutions. QE usually results in a weaker CAD. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The Bank of Canada used the measure during the Great Financial Crisis of 2009-11 when credit froze after banks lost faith in each other’s ability to repay debts.

What is Quantitative tightening (QT) and how does it affect the Canadian Dollar?

Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Bank of Canada purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the BoC stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Canadian Dollar.

Economic Indicator

BoC Consumer Price Index Core (YoY)

The BoC Consumer Price Index Core, released by the Bank of Canada (BoC) on a monthly basis, represents changes in prices for Canadian consumers by comparing the cost of a fixed basket of goods and services. It is considered a measure of underlying inflation as it excludes eight of the most-volatile components: fruits, vegetables, gasoline, fuel oil, natural gas, mortgage interest, intercity transportation and tobacco products. The YoY reading compares prices in the reference month to the same month a year earlier. Generally, a high reading is seen as bullish for the Canadian Dollar (CAD), while a low reading is seen as bearish.