Inflation data paves the way for the Bank of Canada to cut interest rates, solidifying the confidence in rate cuts.

Canada's August CPI annual rate recorded 1.9%, higher than the previous value but lower than expected. This inflation report was released the day before the Bank of Canada's interest rate decision, which is likely to give policymakers more confidence: lowering interest rates can provide support to the economy amid the backdrop of tariff impact without causing inflation to heat up. In the July meeting discussions, officials had debated on lowering interest rates, with some committee members believing that, given the weak economic performance, further economic support measures may be needed if the labor market further weakens. Currently, the conditions for lowering interest rates seem to be met. The latest two employment reports show that Canada saw job losses in both July and August, with over 100,000 jobs lost in the two months combined; the August unemployment rate rose to 7.1%, an increase of 0.5 percentage points since January. In addition, the country's GDP contracted at an annual rate of 1.6% in the second quarter, marking the largest decline since the pandemic began.