Lower Core Inflation Clears Way for BoC Rate Cut

Lower Core Inflation Clears Way for BoC Rate Cut
News| September 16, 2025| Monte Stewart
Canada + Apartment Buildings

Lower-than-expected inflation has increased the chances of a Bank of Canada interest-rate cut on Wednesday, according to leading economists.

Statistics Canada reported Tuesday that the country’s annual inflation rate rose to 1.9% in August. More importantly for policymakers, core inflation—which strips out volatile items such as energy—eased to its lowest level in more than three years.

The central bank is widely expected to reduce its overnight lending rate by 25 basis points to 2.25% following three consecutive holds.

The August inflation increase was driven mainly by higher food and shelter costs, while gasoline prices continued to fall.

The BoC has tied its interest-rate decisions largely to core-inflation trends, even with concerns about U.S. tariff increases’ effects on the Canadian economy. But Tiff Macklem, the central bank’s governor, has warned that it could base future rate decisions on economic shocks rather than trends.

Economists say the softening in underlying inflation pressures suggests monetary policy is restrictive enough to bring inflation back to the central bank’s 2% target, opening the door for further easing. Some economists were concerned that a poor inflation report could deter a widely expected rate cut on Wednesday.

But CIBC Senior Economist Andrew Grantham told The Globe and Mail that “inflation remains unthreatening” once price-movement volatility is stripped from the analysis.

“So all in all, really, this is not an obstacle for the Bank of Canada to cut interest rates tomorrow, and we continue to forecast a 25-basis-point move.”

The U.S. Federal Reserve is also expected to reduce its prime rate on Wednesday.

Pictured: Bank of Canada Governor Tiff Macklem

Photo: Shutterstock

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