Odds of BoC rate cut jump as inflation sees surprise drop

Canada’s inflation rate fell by more than expected in March, sliding to 2.3% and boosting odds of a central bank interest rate cut tomorrow (April 16).

Statistics Canada said on Wednesday that the consumer price index (CPI) slowed compared with the same time last year, down from 2.6% in February and lower than economists polled by Reuters, who forecasted no change in March, had expected.

That decline was spurred mainly by lower costs at the pump and a decline in travel tours prices, although core measures of inflation – the Bank of Canada’s preferred gauge – remained elevated.

Mortgage interest costs were a significant contributor to overall price growth, rising by 7.9% on a year-over-year basis, while rent prices (5.1%) were also up. Food purchased from restaurants, passenger vehicle insurance premiums, and property taxes and other special charges jumped compared with the same time in 2024.

Money markets priced odds of a central bank rate cut tomorrow at approximately 50-50 in the wake of the latest inflation data, having previously seen chances of a reduction at just higher than a third.

Following its last benchmark rate decision, a 25-basis-point cut in March, the central bank emphasized the importance of keeping inflation under control as US president Donald Trump’s trade war threatens to drive prices upwards.

But Tuesday’s inflation reading opens the door to another cut tomorrow, according to Canadian Imperial Bank of Commerce (CIBC) economist Katherine Judge.

“The easing in price pressures is consistent with the Bank of Canada cutting interest rates by 25 basis points at tomorrow’s meeting,” she wrote, “with the downside risks to growth from the trade war outweighing any upside to inflation from tariffs in our view.”

Source CMP
By Fergal McAlinden