Soft Core Inflation Triggers More Rate Cuts in Canada

TD Securities analysts say that Canada's core inflation softness is guiding the Bank of Canada's (BoC) monetary policy trajectory, leading them to expect further interest rate cuts. According to recent data, Canada's core inflation measures, such as CPI-trim and CPI-median, have remained subdued, staying near the lower end of the BoC's 1% to 3% control range.

The latest data release in January 2025 showed that CPI-trim rose 2.4% year-over-year, while CPI-median increased 2.6%, both slightly below market expectations. This softness suggests that underlying price pressures are contained, allowing the BoC to focus on supporting economic growth.

The BoC has already cut its policy rate three times since June 2024, bringing it to 3.25% as of December. TD Securities expects further cuts in 2025, with the policy rate potentially reaching 2.5% by mid-year.