1Q26_ Quarterly Outlook Report_Final_EN - Flipbook - Page 53
T H E P LUMB LI N E | A RETU RN TO F I RS T PRI N CI PL ES
Further policy easing is likely not in the pipeline as the overnight rate currently sits at the lower
bound of the BoC’s estimate of the equilibrium policy rate range
6%
5%
4%
3%
BoC neutral policy rate estimate range
2%
1%
0%
2022
2023
2024
BoC overnight rate
Market forecast
2025
2026
Scotiabank Economics' forecast
Source: Bloomberg Finance LP, Scotiabank Economics, Scotia Wealth Management
There are a few factors underpinning our view. Although headline inflation, currently at 2.2% year
over year in November, is close enough to the BoC’s target, the central bank’s preferred inflation
measures, trimmed-mean and weighted-median CPI, are relatively elevated with both gauges
sitting at 2.8% as at November, right at the upper limit of the Bank’s 1-3% inflation control range.
Encouragingly however, the average of the two measures in month-over-month annualized terms
fell below 2% in November, though the BoC is not likely to declare victory just yet given that the
same had occurred in September 2024, which was then followed by 13 consecutive months of
above-2% annualized core inflation. Additionally, the share of components in the CPI basket
rising at a 3%+ annual clip remains above its long-term average despite having moderated from
its apex.
The BoC’s preferred inflation measures remain at the upper end of the inflation control range
6%
YoY Inflation
5%
4%
3%
2%
BoC inflation control range
1%
0%
Feb 2023
Jul 2023
BoC Inflation Target
Dec 2023
May 2024
CPI - Median
Oct 2024
Mar 2025
CPI - Trim
Aug 2025
CPI
Source: Statistics Canada, Bloomberg Finance LP, Scotia Wealth Management
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