Statistics Canada is set to release the inflation report for September on Tuesday at 12:30 GMT. This report couldn’t have come at a better time. It stands to significantly influence the Bank of Canada’s (BoC) assessment of the need for future interest rate cuts. In August, overall inflation shot up to 2.6% from a year earlier. This spike is particularly notable given that prices were flat in July. As the prognosticators forecast, monthly inflation will be down 0.1% for the month of September — showing a tricky economic climate that policymakers will have to navigate.
In August, the headline inflation print came in at 1.9%, a bit lower than the 2% expected in consensus. This continues the trend of upward revision from the prior month as that reading was 1.7%. While August did contribute to an upward trend in inflation, the bigger picture has remained relatively flat since January. Despite this repetition, the signals sent to the economy are decidedly mixed. The potential prospect of tariffs coming from the United States creates more uncertainty in prices seen domestically.
Recent Trends in Inflation
August’s inflation rate was an indication that price increases were accelerating enough to hint that consumer demand was becoming more robust. The increase to 2.6% in August was especially surprising considering that inflation in July was flat – literally zero percent increase. This change raises the specter of whether the overall economy can keep up its current pace. Can it hold up to promising new external shocks such as future US tariffs?
Analysts have warned that despite these recent trends lifting prices, we need to look beyond them and at overall economic indicators. Pablo Piovano, an economic analyst, pointed out some encouraging signs:
“Furthermore, momentum [indicators] lean bullish: the Relative Strength Index (RSI) hovers near 66, while the Average Directional Index (ADX) is beyond 36, indicating a strong trend.”
Related indicators might indicate that, even against today’s backdrop of uncertainty, the foundations exist for a robust economic expansion to continue.
The Bank of Canada’s Position
Even Canada’s governor Tiff Macklem of the Bank of Canada, which is the high priest of inflation, has tilted dovish on monetary policy. At a recent online press conference, he reiterated that the bank likes to make decisions “one meeting at a time.” He emphasized their resolve to stay a course of vigilant observation of economic indicators and inflation trends before shifting markedly policy direction.
We understand that the BoC is operating with a very challenging decision-making context. It needs to consider the long-term effects of increasing inflation, particularly from the outside, like US tariffs. The mixed messages provided by this latest inflation data make predicting the direction of future rate changes a tricky task. More recently, inflation has started to creep back up. This complicated scenario continues to place pressure on the BoC to act and stabilize the economy.
Economic Forecasts and Market Reactions
Financial markets are on edge with the forthcoming inflation report. This report could go a long way towards continuing to push investor sentiment and expectations for interest rates lower. With September’s forecast calling for a 0.1% decrease in monthly prices, analysts are bracing for all possibilities. The uncertainty around domestic prices, especially as it relates to bad international trade policy, only clouds this outlook more.
The market seems to be anxiously waiting for the report to be made public. Stakeholders understand that any surprise numbers would result in rapid fire responses in the capital markets. Both investors and policymakers are eager to act. We’re thrilled they’ve decided to zero in on this key dataviz that shows the course of inflation across all of Canada.