Slower GDP growth and easing inflation trends are likely to influence the Bank of Canada’s upcoming rate decision, offering key insights as we approach their October 23 meeting.

The Consumer Price Index (CPI) rose 1.6% year over year in September, the slowest pace since February 2021 and down from a 2.0% gain in August 2024. The main contributor to headline deceleration was lower year-over-year gasoline prices in September (-10.7%) compared with August (-5.1%). The all-items CPI, excluding gasoline, rose 2.2% in September, matching the increase in August for this measure.

Although the rate at which prices increase has slowed, price levels remain elevated. Compared with September 2021, the CPI rose 12.7% in September. Canadians continue to feel the impact of higher price levels for day-to-day basics such as rent (+21.0%) and food purchased from stores (+20.7%), which increased during that same 3-year period.

The CPI fell 0.4% in September after a 0.2% decline in August. Lower gasoline prices led to both the monthly and yearly movement in September. On a seasonally adjusted monthly basis, the CPI remained unchanged at 0.0%.

The central bank’s two core inflation measures remain sticky. Both measures were unchanged in September (see chart below). According to Bloomberg calculations, a three-month moving average of those measures fell to an annualized pace of 2.1% from 2.3% in August.

According to Bloomberg News, “After the release, traders in overnight swaps upped their bets that the Bank of Canada will opt for a larger rate cut at next week’s decision, putting the odds of a half-percentage-point reduction at about 75%. Previously, the odds were around 50%.” The Canadian dollar weakened further on the news relative to the greenback. The loonie has fallen for ten days, the longest streak since 2017. Canadian debt rallied across the yield curve, outperforming US Treasuries and pushing the two-year Canada benchmark yield to 3.03% and the 5-year bond yield to 2.92% by mid-day.

Tuesday’s data marks the first time since February 2021 that inflation is below the central bank’s 2% target and is the ninth straight month of headline rates running within its target range. With inflationary pressures continuing to ebb and policymakers focusing more on preserving economic growth, the data give the central bank options to reduce rates quicker after cutting borrowing costs at 25 basis points at the past three meetings.

Bottom Line

While the September employment data were stronger than expected, Q3 GDP growth is slated to be roughly 1.8%, well below the Bank of Canada’s 2.8% forecast. Today’s inflation report is the last important data point before the Bank meets again on October 23. Late last month, BoC Governor Tiff Macklem warned that growth may be below policymakers’ previous expectations in Q3.

Excluding shelter costs, the consumer price index rose 0.4% from a year ago compared to 0.5% in August. Mortgage interest costs and rent remained the most significant contributors to the annual inflation rate change. However, rent prices increased at a slower pace in September, rising 8.2% versus 8.9% in August. Tuition fees, priced annually in September, also grew slower, increasing 1.8% compared with 2.5% last year.

Regionally, inflation is now at or below 2% in every province, with prices rising slower in September than in August in all ten provinces. The central bank will release new economic forecasts in the Monetary Policy Report next week. Macklem has said,  “decisive monetary policy action and the unblocking of supply chains” means “uncertainty about costs and inflation are much lower today than two years ago”.

Dr. Sherry Cooper,

Chief Economist, Dominion Lending Centres

Image Credit: Andre Hunter Unsplash

Multiple meaningful changes are coming to make homeownership and adding revenue to your principal residence more affordable for Canadians like you. Whether you’re a first-time homebuyer, a current homeowner whose mortgage is coming up for renewal, or someone looking to add a legal secondary suite or laneway home, these updates will help you make the most of your investment. Here are the key changes to be aware of:

• Higher insured mortgage availability: Starting December 15, 2024, the government is increasing the insured mortgage price cap from $1 million to $1.5 million. This makes higher-value homes available to buyers in more expensive markets with less than 20% down. This is especially helpful in cities like Toronto and Vancouver, where home prices often exceed $1 million. If you’ve been struggling to save up a large down payment, this change will help get you closer to owning a home.
• Extended 30-year amortizations: If you’re buying your first home or purchasing a new build, as of December 15th, 2024, you’ll have the option to stretch your mortgage payments over 30 years. This may allow you to qualify for a greater purchase price, or may make mortgage payments more manageable, allowing you to balance your monthly budget with other financial goals. More flexibility to afford other things like savings, travel, or education may be more easily within reach.
• Refinancing for secondary suites: Starting January 15, 2025, if you’re planning to add a legal secondary suite to your home (such as a basement apartment or a laneway house), you’ll be able to refinance your mortgage with an insured loan to help fund the construction from the equity in your home. With default loan insurance, the loan amount can be higher relative to the value of your home, allowing you to access more funds for renovations without needing a large down payment. Additionally, insured loans typically come with lower interest rates compared to conventional loans, which can result in significant savings over time. This could be beneficial if you want to build a rental suite to generate extra income or create more living space for family members. Not only does this increase the value of your home, but it also offers a smart financial strategy to support long-term goals.
• Renewing mortgages without a stress test: For those with uninsured mortgages approaching renewal, there’s more good news. The national banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), has announced that it will “no longer require borrowers with uninsured mortgages to undergo a stress test when switching providers.” More will be formally communicated November 21, 2024. This means conventional borrowers will be joining insured borrowers (those who purchased with less than 20% down) to be able to qualify to switch lenders more easily, providing greater flexibility in managing their mortgages and potentially securing better rates and terms.

These reforms should go a long way to making buying and owning a home easier for many, providing greater flexibility, and helping borrowers capitalize on their home investment. Whether you’re looking to buy, refinance, or expand, it’s a great time to take advantage of these new options. Reach out any time to discuss to see how these changes can benefit you directly. My number is above and I’m always happy to help.

Sources:

Department of Finance “Backgrounder” October 8, 2024

Department of Finance “News Release” September 24, 2024

BNN Bloomberg, The Canadian Press, “OSFI easing stress test requirements for uninsured mortgages when switching providers” September 25, 2025