CIBC on Economic Forecast, Markets' Reaction to Canadian CPI

11:28 AM EDT, 09/16/2025 (MT Newswires) -- Inflation remained largely unthreatening in August, which, combined with recent weakening in the labor market, should make a Bank of Canada interest rate cut on Wednesday a done deal, said CIBC.

With core measures of inflation likely to cool further in the months ahead, thanks to the slack building up in the economy and the removal of many retaliatory tariffs against the United States on Sept. 1, the bank not only expects a 25bps rate cut on Wednesday but also a further reduction at the October meeting.

While headline inflation accelerated to 1.9% year over year from 1.7% in the previous month, that was largely due to base effects and was actually slightly lower than the consensus expectation on 2.0%, stated CIBC after Tuesday's CPI release.

While headline inflation may edge up a little further in the months ahead, this will largely once again be due to less favorable base effects related to gasoline prices, added the bank. Core measures of inflation should continue to cool, given evidence of slack building in the economy and potentially some weaker prices related to the lifting of retaliatory tariffs in early September.

Bond yields fell following Tuesday's release, with markets moving to almost fully price in a rate cut at Wednesday's BoC meeting and adding to bets for further moves in the months ahead, according to CIBC.

The Canadian dollar (CAD or loonie) was strengthening against the US dollar (USD) heading into Tuesday's release, but partly reversed that move post-release, added the bank.

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