Residential Market Commentary - Another rate cut seems likely

Canada’s latest inflation numbers have softened expectations for another rate cut by the Bank of Canada, but not by much. 

The September inflation report from Statistics Canada showed the annual inflation rate rose by 2.4% in September, up from 1.9% in August and higher than the 2.2% expected by analysts. 

The StatsCan report shows declining gasoline prices were outpaced by rising grocery costs. 

Expectations for a rate reduction have diminished but remain strong.  Markets pulled back the chances of a cut to about 70%, down from 77% before the report. 

Most economists are basing their forecasts on the central bank’s preferred measures of core inflation, which have largely stabilized.  They also point out that the Bank of Canada has expanded the data sets it is using to guide its rate decisions.  For example, Canada’s rising unemployment numbers have taken on more importance. 

In a speech to mortgage professionals, just before the inflation numbers were released, well known economist Benjamin Tal raised the spectre of a recession. 

“We are in a recession,” if it’s not a formal recession, it’s a per-capita recession for sure — especially if you live in Ontario and B.C.,” Tal said. 

Tal says the BoC has “the green light to cut interest rates.” He is predicting a 25-basis-point reduction at the next policy meeting, with another move possible by early 2026.