Canadian inflation is anticipated to moderate slightly in October, though underlying price pressures are expected to remain above the Bank of Canada’s (BoC) 2% target. The Canadian Dollar (CAD) has regained some strength this month ahead of Monday’s key inflation data.
Statistics Canada will release October’s Consumer Price Index (CPI) report, providing the BoC with critical insight ahead of its December 10 policy meeting, where interest rates are widely expected to remain at 2.25%. Economists forecast headline inflation at 2.1% year-on-year (YoY), down from September’s 2.4%, with a modest 0.2% increase month-on-month (MoM). The BoC’s preferred core CPI, which rose 2.8% YoY in September, remains a focus for policymakers.
Analysts are cautious following last month’s inflation uptick, and concerns over potential US tariff impacts on domestic prices add further uncertainty. For now, both markets and the BoC appear to favor a wait-and-see approach.
BoC Policy Outlook
In October, the BoC cut its benchmark rate by 25 basis points to 2.25%, largely in line with expectations. Governor Tiff Macklem described policy as providing “some stimulus” amid slowing economic momentum but cautioned that one weak data point would not alter the bank’s broader view. He also flagged stretched equity valuations as a concern.
Senior Deputy Governor Carolyn Rogers highlighted the CAD’s role as a buffer against shocks and noted growing regional disparities in the housing market. Both officials acknowledged that financial stability risks are increasingly relevant.
Market Implications
Markets will focus on Monday’s headline CPI release at 13:30 GMT. A stronger-than-expected reading could indicate that tariffs are feeding into consumer prices, potentially supporting the CAD and signaling a cautious BoC stance in the near term.
According to Pablo Piovano, Senior Analyst at FXStreet, the Canadian Dollar has gained ground since earlier this month, pushing USD/CAD back toward the 1.4000 region. Resistance is seen near 1.4140, with support at the 200-day SMA around 1.3929 and further downside near 1.3887. Momentum indicators, including the RSI near 53 and ADX at 25, suggest the trend remains firm.
US-China Trade Tensions and Inflation Risks
The ongoing US-China trade conflict continues to influence global price pressures. Originally triggered in 2018 under the Trump administration, the trade war escalated with tariffs and counter-tariffs, and although the Phase One trade deal in 2020 temporarily eased tensions, tariffs largely remain in place.
With Trump returning to the White House in January 2025, fresh tariffs on Chinese goods have intensified economic frictions, contributing to inflationary pressures that may affect Canadian prices indirectly.
Economic Indicator: BoC Core CPI (MoM)
The Bank of Canada’s Core CPI excludes volatile items such as fruits, vegetables, gasoline, fuel, mortgage interest, intercity transport, and tobacco. It tracks underlying inflation trends and is closely monitored by policymakers. A higher reading is considered supportive for the CAD, while a lower reading may weaken it.
- Last release: October 21, 2025
- MoM: +0.2%
- Previous: 0%
