Canada CPI: Some positive news on disinflation should help reinforce rate cuts are coming – TDS

In Canada, the first Consumer Price Index (CPI) report in 2024 came in softer than expected. Economists at TD Securities analyze if the Bank of Canada (BoC) could pivot to interest rate cuts.

The BoC will continue to proceed cautiously

The January CPI report surprised to the downside with inflation falling 0.5pp to 2.9% YoY as prices held unchanged on the month. Airfares and core goods helped drive the deceleration while telecoms provided a source of strength. January also brought further progress on CPI-trim/median with 3m rates of core inflation running at 3.2%.

Today's report is a meaningful event for the near-term BoC outlook and should help reinforce rate cuts are coming. Still, we think the Bank will proceed cautiously and require further evidence of moderation before it shifts its stance. 

Today's report will not be enough for the Bank to declare mission accomplished in March, but it does move the goalposts a little closer.