CIBC on Economic Forecast, Markets' Reaction to Canada CPI Data

11:02 AM EDT, 10/21/2025 (MT Newswires) -- A larger-than-expected acceleration in headline consumer price index makes the Bank of Canada's interest rate decision next week a little more complicated, but core measures of inflation are likely still subdued enough, and gross domestic product growth sluggish enough, to justify a further 25bps cut in interest rates, said CIBC.

Headline inflation accelerated to 2.4% year over year from 1.9% in the prior month and in contrast to consensus forecasts for a more modest pick-up to 2.2%, noted the bank. Prices rose 0.1% on the month in unadjusted terms and 0.4% when adjusted for seasonality.

As well as the expected monthly pickup in gasoline prices, resulting from refinery disruptions and maintenance, food price inflation also reaccelerated in September. Excluding food and energy, the acceleration in inflation to 2.6% year over year from 2.5% was much smaller than the move up in the headline measure, stated CIBC after Tuesday's CPI.

The bank thinks that core measures of inflation were just about subdued enough, and the economy is certainly weak enough, to still justify a further 25bps cut from the BoC at the Oct. 29 policy meeting. However, after that, the BoC is likely to move back onto the sidelines, in part due to evidence of some lingering inflationary pressures, but also on the assumptions that economic growth starts to recover and progress is made towards a trade deal that reduces some of the sector-specific tariffs currently impacting Canadian trade.

Bond yields rose and the Canadian dollar (CAD or loonie) appreciated slightly against its US counterpart following Tuesday's stronger-than-expected data, added CIBC.

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