Inflation Falls, Boosting Odds of a BoC Rate Cut

The July inflation report, released on August 19, came in softer than expected. Headline inflation eased to 1.7% year over year from 1.9%. Economists were looking for 1.8%. Core inflation also surprised on the friendly side. Markets expected an increase from 3.00% to 3.10%, but the annual change rose by only 0.05 percentage points. Not a fireworks show, but enough for a polite golf clap.Promising news overall… but what does this mean for mortgage rates? Bond yields dropped on the news, and those yields are a key driver of fixed mortgage rates. Yields are now below their mid-July peak but still a touch above their August 8 low. We would need a further decline before lenders have room to trim fixed rates. For now, fixed mortgage rates are holding steady. For now, maybe keep the champagne in the fridge rather than on ice.

Will the Bank of Canada cut in September?

A softer inflation print helps, but it may not be enough on its own to trigger another cut on September 17, the next Bank of Canada announcement. Market odds of a September cut rose from 34% to 40% after the report. That still points to a pause rather than a cut. The needle moved from a maybe to a slightly-more-maybe.

There are still a few notable events expected before decision day:

• Canada jobs report on September 5

• US inflation on September 11

• Another Canadian inflation report on September 16, one day before the BoC announcement

Any one of these could shift the outlook. If the September 16 report shows a meaningful drop in inflation, the odds of a cut would rise substantially. At that point, even the most cautious forecasters might loosen their collars a notch.

What Leading Economists are Saying: 

“ Labour markets have softened, and with conditions near a bottom, another cut this cycle is unlikely.”

“July’s easing in inflation clears one obstacle on the path to a possible September cut.”

“There is room for more easing later this year as economic slack builds and offsets price pressures.”

“With underlying price pressures easing, a September cut is more likely than not.”

There is always going to be differing opinions among economists. At the end of the day, all they can do is speculate… and forecasts are always changing. 

Final Thoughts

The inflation trend is moving the right direction, just not fast enough to schedule a victory parade. Uncertainty is still running rampant and anything can happen… particularly with Trump in office. We still don’t seem much closer to an end to tariff situation. Who knows how much longer this will go on for? Any progress in trade negotiations can have an impact on future rate movement.

Time will tell and anything can happen. 

Other recommended blogs: 

8 Key Considerations Before Renewing Your Mortgage

Fixed vs. Variable – How to Decide in Today’s Market 

3 Year vs. 5 year Fixed: The Mortgage Shift No One’s Talking About