By James Langton

(January 18 – 14:30 ET) – Canadian economists are split on what effect today’s Consumer Price Index report will have on next week’s Bank of Canada meeting.

The headline inflation rate held steady at a nine-year high of 3.2%, as prices rose 0.3% in December on a seasonally-adjusted basis, or just 0.1% unadjusted.

Core inflation continues to rise gradually, up to 1.9% in December, and is likely to push above 2% in January..

BMO Nesbitt Burns Inc. chief economist Sherry Cooper says, “Today’s CPI report was in line with expectations, and does nothing to clear the picture on next week’s rate decision by the Bank of Canada. While it is staggeringly clear that the U.S. economy has hit an air pocket, there is still little hard data showing a cooling in Canadian growth and price pressures. Given the uptick in core inflation, the Bank may decide to stand pat.”

TD Bank senior economist Marc Lévesque agrees, noting, “With the Canadian economy still operating close to full capacity, economic indicators on this side of the border still fairly robust, and core inflation poised to move above the mid-point of the Bank of Canada’s target band, there is not a strong case for any action on the interest-rate front at the Bank of Canada’s policy-setting meeting next week.”

However, Lévesque suggests that the bank will act pre-emptively, “Still, the extent of the economic slowdown that is underway in the U.S. — which will start to trickle across the border in the months ahead — should be enough to convince the central bank to implement a modest 25-basis-point cut on Tuesday morning.”

CIBC World Markets agrees with TD, saying, “With core still modest, the bank will have the flexibility to cut rates aggressively when growth begins to falter in the response to weaker export markets. But for now, with Canadian growth rates holding up better than those stateside, we don’t expect the bank to match the 50 basis point cut already delivered by the Fed. Look for at most a 25 bps reduction in rates on January 23rd, with more dramatic rate slashing coming in March.”