Canadian Dollar: Inflation risks and BoC stance – TD Securities

TD Securities’ economist Robert Both expects Canadian CPI to rise to 3.2% year-on-year in September, driven mainly by higher Energy and Gasoline prices, while core measures such as CPI-trim and median remain near 1.9%. The subdued core profile should limit Bank of Canada reaction, even as new inflation forecasts in the October MPR are upgraded for headline CPI.

Headline CPI lifts, core stays soft

"We look for CPI to firm 0.1pp to 3.2% y/y in September (+0.2% m/m) on another large contribution from energy. Core CPI not expected to show any material broadening of price pressures, with CPI-trim/median projected to edge lower to 1.9% y/y."

"The subdued performance for core CPI should contribute to a more balanced message from the BoC in October with limited passthrough from high oil prices."

"Headline CPI is set to push further above the target range with a 0.1pp increase to 3.2% y/y in September as prices rise by 0.2% m/m."

"Our forecast would see CPI-trim hold at 1.9% y/y in September, while the weighted median edges 0.1pp lower to 1.9%. That would bring CPI-trim/median back to their 2026 lows, even if 3m rates of core inflation at 2.7% paint a more hawkish picture."

"While the Bank has leaned on those 3m rates of core CPI in previous episodes where momentum has shifted quickly, we don't think that 2.7% meets the threshold for the BoC to respond, especially on the heels of renewed weakness in the labour market."