Canadian CPI Is Good Enough for A Hawkish Rate Cut, Says Scotiabank

12:31 PM EDT, 10/21/2025 (MT Newswires) -- Canada's consumer price index for September was 0.1% month-over-month non-seasonally adjusted (NSA) and 2.4% year over year, noted Scotiabank.

Canadian core inflation measures remain good enough for the Bank of Canada to cut next week when properly evaluated in terms of month-over-month trends and breadth.

Key is that each of the main core measures of inflation was well within the flexible 1%-3% headline inflation target range and was likely overstated by mechanistic seasonal adjustments that may not be appropriate, said the bank.

Trimmed mean and weighted median core measures that were both 2.8% month-over-month at a seasonally adjusted and annualized rate (SAAR). The traditional core CPI measure which only excludes food and energy and was 2.3% month-over-month SAAR.

The BoC will mostly welcome the breadth readings, pointed out Scotiabank. They show that the share of the CPI basket that is cruising above 3% or 4% month-over-month SAAR is between roughly one-third and 40%.

Traditional core CPI was among the lowest on record for like months of September over time, according to the bank. What propped up the seasonally adjusted (SA) reading for traditional core in month-over-month SA terms was a high seasonal adjustment factor.

Statistics Canada will say that the SA factor is just a mechanistic outcome of applying standard X12A seasonal adjustment methodologies that are commonly used by many data agencies. That's not the same as saying it should be taken at face value, added Scotiabank.

There is plenty of precedent to cut after the average of the trim mean and weighted median CPI landed at about 2.75% month-over-month SAAR. In fact, it has done so a half dozen or so times in the past.

Scotiabank thinks the BoC will work the flexible inflation target range that Governor Tiff Macklem keeps emphasizing and deliver easing at the Oct. 29 policy meeting but with a hawkish sounding and noncommittal feel.

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