CAD: Softer CPI lowers BoC reaction threshold – TD Securities
|TD Securities analysts note that Canadian January CPI surprised slightly to the downside at 2.3% year-on-year, with core measures also easing. They argue the Bank of Canada is unlikely to overreact but say softer core momentum reduces the bar for policy response to future growth headwinds. Canadian fixed income outperformed, and TD believes downside rate risks are now fully priced.
Disinflation seen but BoC patient
"Headline CPI surprised to the downside in January with a 0.1pp deceleration to 2.3% y/y (market: 2.4%, TD: 2.5%) as prices held unchanged on the month. Base-effects from last year's HST pause drove a sharp acceleration in food prices, but this was offset by a larger drag from energy and further disinflation in shelter."
"Core inflation measures mirrored the headline surprise with a 0.2pp deceleration to 2.45% y/y for CPI-trim/median, which pulled 3m core inflation rates to just 1.2%. We do not expect the BoC to overreact to softer core inflation momentum, but it should lower the threshold for the Bank to respond to any new growth headwinds in 2026."
"Canadian fixed income outperformed on the back of the downside miss on CPI, which nicely illustrates the current market dynamic: for the moment, we look for markets to embrace negative data prints and look past positive ones. Canada-US 10s tightened by ~2bps following the release, and with the move lower in short-end rates we believe that downside risks are fully priced."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.