'A lot to like': Economists react to Canada's inflation data

Economists are expressing a notable shift in sentiment after recent data from Statistics Canada revealed a decline in the country's inflation rate. In January, inflation dropped to 2.9%, a notable decrease from December's 3.4%, and notably lower than economists had anticipated. This positive turn in the data is receiving a warm welcome from both consumers and the Bank of Canada, aligning more closely with the central bank's two percent target.

Pedro Antunes, Chief Economist at the Conference Board of Canada, expressed optimism, highlighting that the current inflation rate falls within the bank's target range of one to three percent. He stated, "This is really great news actually," emphasizing the positive impact on the overall economic landscape.

Randall Bartlett, Senior Director of Canadian Economics at Desjardins, echoed this sentiment, describing the data as surprising and stating, "There is a lot to like in today’s inflation release." He pointed out that every measure of inflation came in below expectations, marking a positive development for the economic outlook.

The question on many minds is the potential impact on interest rates. Antunes believes that despite the positive inflation data, it is unlikely to alter the Bank of Canada's timeline for rate cuts. He emphasized the bank's cautious approach and suggested that any rate adjustments might not occur before mid-year.

Antunes also indicated that the Bank of Canada might wait for cues from the U.S. Federal Reserve before making any moves. He stated, "I think the bank is going to be very reticent to start to lower rates ahead of anybody else here, especially ahead of the U.S."

Financial expert Shannon Terrell from NerdWallet Canada sees the January inflation data as encouraging for those hoping for interest rate cuts. She underlined the influence of inflation data on the Bank of Canada's rate decisions, suggesting that the current trends could lead to relief from high-interest rates.

Despite the positive outlook, Bartlett does not anticipate rate cuts until later in the year. He mentioned ongoing weaknesses in the central bank's consumer and business surveys and linked the inflation deceleration in January to a case for rate cuts in the second quarter of 2024.

On a slightly different note, Veronica Clark, an economist with Citi Financial, maintained a cautious stance. She suggested that rate cuts might not be expected until the summer, emphasizing the need to avoid stimulating housing demand during the spring buying season.

In summary, the recent dip in Canada's inflation rate has generated optimism among economists. While the positive data is seen as favorable for potential interest rate cuts, there remains a consensus that the Bank of Canada will exercise caution and may wait for cues from the U.S. Federal Reserve before making any significant moves.