Inflation still too hot for the BoC to cut rates further: Scotiabank

Scotiabank Economics is warning that inflation remains too persistent for the Bank of Canada to continue cutting rates.

February’s CPI report showed core price pressures exceeding expectations, raising doubts about further easing.

StatCan reported a 1.1% month-over-month jump in inflation, with the BoC’s preferred measures—trimmed mean and weighted median CPI—rising at an annualized 2.9%, up from 2.7% in January. While some of the increase was due to the temporary GST holiday, Scotiabank notes that broader inflationary pressures remain, challenging the BoC’s outlook.

BoC preferred core measures of inflation

“Core inflation has yet to show a convincing pattern of lagging disinflation to the emergence of a small amount of slack in the economy,” wrote Scotiabank economist Derek Holt. “That should merit the BoC ending cuts for some time, especially amid the looming effects of tariffs on inflation and rising inflation expectations.”

Since beginning its easing cycle, the BoC has cut rates by 225 bps to 2.75%, but Scotiabank warns it may have moved too quickly. Inflation, Holt argues, “is simply too hot” and has been since last May.

“The longstanding trend points to readings that are clearly saying that the BoC’s work is not done,” Holt says.

BoC’s next move

With inflation still running above target and showing little sign of a sustained downward trend, Scotiabank suggests the BoC should reconsider its policy stance. The March CPI data, set for release on April 15, will be key in determining whether February’s inflation surge was an anomaly or part of a deeper trend.

Market expectations currently point to a slim chance of a 25-bps cut in April, but even that may be premature.

For now, Scotiabank’s message is clear: The BoC’s job isn’t finished, and further rate cuts could reignite inflation rather than guide the economy to a smooth landing.

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Last modified: March 20, 2025

Steve Huebl

Steve Huebl is a graduate of Ryerson University's School of Journalism and has been with Canadian Mortgage Trends and reporting on the mortgage industry since 2009. His past work experience includes The Toronto Star, The Calgary Herald, the Sarnia Observer and Canadian Economic Press. Born and raised in Toronto, he now calls Montreal home.