Canadian Core Inflation Cements Rate Cut by The Central Bank on Wednesday, Says Scotiabank

12:35 PM EDT, 09/16/2025 (MT Newswires) -- Canadian core inflation cemented a rate cut by the Bank of Canada on Wednesday, said Scotiabank.

That was the bank's call before Tuesday's consumer price index data. The figures didn't hurt the call either as markets now have a cut fully priced and at least another one. Analysts who thought otherwise would presumably be changing their calls now, or would have to come up with some other new reason for holding out.

For the BoC to hold on Wednesday, it would need extremely good arguments in order to avoid materially tightening financial conditions by wiping out priced cuts.

Until the start of September, markets had only a slight chance of a cut priced for on Wednesday, pointed out Scotiabank. They had spent the whole year trapped in a cycle of pushing out cut expectations and getting disappointed in serial fashion. Cut narratives were delivered on a lark, absent enough supporting evidence-until the facts changed relatively recently, which motivated a change the bank's long-held pause rate call.

Canadian reciprocal tariffs against the United States are gone, added the bank. The U.S., job market dramatically weakened including massive downward revisions that raise doubts about U.S. resilience and what it means to Canada's economy.

The Canadian job market suddenly began souring. Gross domestic product disappointed despite strength in the domestic economy and tracking for Q3 GDP is looking soft, which adds to modest slack. There are points and counterpoints about each of these arguments in the cut versus hold cases but the balance of the evidence significantly favors a reduction -- for now.

Headline CPI for August accelerated from 1.7% year over year to 1.9% year over year, partly due to a shift in year-ago base effects and a mild 0.2% month-over-month seasonally adjusted (SA) rise in August. This measure is distorted by the early April elimination of the consumer portion of the carbon tax, which will depress the year-over-year headline CPI reading until next spring, when it should bounce higher once the data starts comparing to a year-ago starting point after April's carbon tax change.

Key, however, is that all of the core inflation gauges were soft, which extends the multi-month softening trend to provide data-dependent cover for a cut, added Scotiabank. Forward-looking arguments matter more, but current data strengthens the case for a reduction.

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