Bank of Canada Governor Tiff Macklem takes part in a news conference after announcing an interest rate decision in Ottawa, Ontario, Canada March 6, 2024. REUTERS/Blair GableBlair Gable/Reuters

Jeremy Kronick is the associate vice-president and director of the Centre on Financial and Monetary Policy at the C.D. Howe Institute, where Steve Ambler, a professor of economics at Université du Québec à Montréal, is the David Dodge Chair in Monetary Policy.

When headline inflation increased to 2.9 per cent in May, up from 2.7 per cent in April, there was much speculation that the Bank of Canada would pause its rate cuts. However, it ticked back down to 2.7 per cent in June. That, plus a weakening labour market and stagnating per capita GDP, made it practically certain the bank would cut on Wednesday. It did.

Whether the bank has entered an easing cycle is no longer the question. The only question left is how far and how fast the Bank of Canada continues to cut interest rates.

There are several upside risks to inflation in the near future which could cause the bank to pause its rate cuts. We think it shouldn’t. Here’s why.

The first upside risk comes from volatility in the shorter-term inflation numbers.........

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