观点

Recent inflation data has boosted the likelihood of a rate cut.

Given the September CPI reading and domestic demand weakness, we expect the central bank to cut the policy rate by 100bp in the October MPC meeting to 36%.

At the same time, a hold remains plausible, as the recent slowdown in CPI was overwhelmingly food-driven, while a renewed acceleration in overall inflation, taking it further away from the 5% long-term target, remains a risk.

The post-CPI rally suggests the economy’s sensitivity to the level of rates may have increased.

• What we’re watching next week :The focus in Europe next week will be on UK data, including jobs and inflation, and the flash October PMIs.

Beyond the usual growth and inflation signals, we will be watching for any evidence in the surveys that budget uncertainty in the UK and France is weighing on business sentiment.

There are signs that AI adoption is occurring relatively fast in the UK’s services -orientated economy Private sector hiring remains subdued despite relatively firm economic activity What we’re watching next week Flash PMIs and UK inflation: Next week will bring a busy run of UK data ahead of the Budget on 28 October.

Both consumer and producer price inflation surprised to the upside, and unlike last month, there was no single area clearly skewing the numbers higher.

Rental costs, which make up a whopping 44% of the core inflation basket, should continue to gradually ease given the cool state of the US housing market.

Put that together, and it’s not difficult to see how inflation gets much closer to 2% by the second quarter of next year, when the energy story also starts to filter out of the annual comparison.

Inflation (Wed): We expect headline CPI to rise to 3.5%, on a path towards 4% around the turn of the year.

• Next week will bring a flurry of economic data, including the latest inflation report.

economics.td.com 2 Weekly Bottom Line As expected, the mortgage interest cost (MIC) com - ponent of CPI turned deflationary in the second half of 2026.

We now expect MIC inflation to turn positive again in the coming months (Chart 2).

A renewed increase would complicate the inflation outlook, particularly against an increasingly unfavourable backdrop for goods in - flation .

Last month, the Bank of Canada’s preferred core inflation measures began drifting above the 2% target.

Meanwhile, bond mar - kets reflected developments south of the border, where stronger-than-expected inflation reports contributed to a flattening of the yield curve.

Year/Year % Change Chart 2: Mortgage Interest Cost Inflation Poised to Turn Positive Again -3 -2 -1 0 1 2 3 4 5 6 Mar 26 Apr 26 May 26 Jun 26 Jul 26 Aug 26 Sep 26 Source: CREA,TD Economics.

U.S. equities look to end the week in the red, as a hotter inflation report led to a significant AI-related selloff amid growing con - cerns that elevated interest rates could pose funding challenges and slow the AI buildout.

US bond and equity markets have remained volatile over the past 24 hours as investors weigh mixed signals on the outlook for AI alongside further evidence of persistent US inflation.

Medium- to long-duration quality bonds may also appreciate if tighter monetary policy slows growth or reduces longer-term inflation expectations, helping to offset weakness elsewhere in a portfolio.

CPI is forecast to post a gain of 0.2% m/m NSA, as per the polling convention, and 3.2% y/y (3.0% prior).

Core goods inflation is expected to rebound (chart 3) and core services inflation is expected to remain firm (chart 4).

More difficult to anticipate are the trimmed mean and weighted median measures of inflation in month-over-month terms rather than the slow-moving y/y compounded readings.

In fact, all measures of inflation are on or above the BoC’s 2% inflation target.

Chart 7 Month Weighted Median Trimmed Mean Traditional Core Jan-2026 1.6 1.1 0.8 Feb-2026 1.6 0.6 1.5 Mar-2026 2.7 2.2 -0.8 Apr-2026 2.2 1.7 0.8 May-2026 1.6 2.8 3.1 Jun-2026 1.1 1.1 3.9 Jul-2026 2.7 2.8 3.1 Aug-2026 2.7 2.8 3.9 Canadian Core CPI Measures Sources: Scotiabank Economics, Statistics Canada.

Chart 9 Chart 8 THE GLOBAL WEEK AHEAD October 16, 2026 Global Economics 4 Key in terms of the BoC’s surveys will be whether their measures of inflation expectations follow fresher, higher frequency r eadings such as the CFIB small business measure that have moved higher (chart 9).

Core producer prices will matter because they’ve been sending up smoke signals on inflation risk for quite a while (chart 10).

Movements in producer prices ex-food and energy serve as a leading indicator of core consumer price inflation and could well partially explain the recently warmer readings with potentially more to come.

Therefore, this wait -and -see approach by potential buyers is expected to weigh on housing demand until trade and geopolitical tensions—along with their resulting impact on expected inflation and purchasing power conditions—start cooling down.-30 -20 -10 0 10 20 NL (St.

Taken together, the CPI and PPI reports have prompted economists to revise higher their forecasts for the core PCE deflator in September, with expectations now centred in the 0.3%-0.4% M/M range.

Her emphasis on upside price risks and still-accommodative financial conditions is consistent with further rate increases in the coming months, with the pace dependent on incoming economic and inflation data.

We will likely get a better understanding of that when numerous working groups will report findings, including on AI and inflation.

For inflation, the headline print was only up by 0.1ppts to 0.9%yoy in September with the core CPI unchanged at 1.0%yoy.

Meanwhile, PPI inflation surged to 5.0%yoy, the fastest pace of expansion since June 2022.

However, consumer confidence slid during the quarter, with the Conference Board’s Consumer Confidence Index deteriorating in September to its lowest level since April 2014 amid anxiety about high energy prices, rising interest rates, and elevated inflation.

In response to upward inflation pressures and the risk of a lengthy period of elevated energy prices, the European Central Bank (ECB) raised interest rates for the second time this year.

Annual headline inflation rose more than expected to a three-year high of 3.8% in September, increasing pressure on the ECB to raise interest rates again by year end.

The September minutes were firmly on the hawkish side, with the discussion focussing on materialising upside risks to inflation.

Still, with a clear focus on inflation risks – which also led us to revise up our near-term CPI forecasts in the October Market Outlook – we still expect a 25bp rate hike at the November meeting.

Over in the US, the headline CPI rose 0.6% as expected in September, taking the annual rate up to 3.7%yr.

We hold a similar view, anticipating that one more hike by year end and a little time will bring inflation near the 2.0%yr medium-term target.

However, as discussed in this month’s Market Outlook, capacity pressures are likely to see inflation consistently above target, rather than below, in coming years – particularly if, as we suspect, capacity in the housing sector remains tight.

This is why we were puzzled by the passage in the RBA minutes this week suggesting that cost pressures reported in business surveys might imply that the unemployment rate consistent with inflation at target (the NAIRU) has risen.

Thus, Australia ended up with wages growth too low to be consistent with inflation at target, and the peculiar spectacle of a central bank governor complaining that wages growth was too low.