Today’s inflation data should do nothing to get in the way of further interest rate cuts by the Bank of Canada, economists say.

On an annual basis, inflation rose to 2.8%, up from 2.6% in the prior month. Core prices rose 0.1%, as expected, holding the year-over-year rate at 2.2%. The Bank of Canada’s new measure of core inflation, CPIX, dropped slightly to 2.3%. Inflation remains above the midpoint of the bank’s target range.

But, CIBC World Markets says, “Inflation remains a concern for another day. That’s the message to take away from today’s CPI report, which provides cover for additional Bank of Canada rate cuts aimed at restoring momentum to a slumping economy.”

CIBC says that inflation may still move toward 2%, as the bank is targeting. “The economic landscape remains clearly supportive for a moderation in consumer prices; labour market slack continues to open up; capacity utilization rates are locked in a year-long free fall; and ongoing global competition has robbed many businesses of meaningful pricing power. Energy prices remain a key wild card, with risks of US retaliation in the Middle East capable of producing a temporary spike in heating oil and gasoline prices. A potential energy surge would not materially alter the outlook for underlying prices, as core CPI showed few ill effects of the 1999- 2000 energy shock.”

TD Bank agrees, noting, “Inflation is unlikely to show up as more than a blip on the Bank of Canada’s radar screen in the months ahead, as all eyes will remain tightly focussed on the staggering U.S. economy in the wake of last week’s tragic events.”

RBC DS Capital Markets Research says, “This normally closely-watched report will be relegated to the back-burner by markets. Indeed, there is little scope for consumer prices to rise in any threatening way within this environment of softening economic activity.”

CIBC adds that, “an outright contraction in second half GDP should see the Bank offer up another 75 bps of easing in the coming months”.

BMO Nesbitt Burns concludes that inflation should pose no barrier to, “the Bank of Canada staying on course to provide whatever liquidity may be required to maintain financial stability in the period ahead”.