Monday Market Minute | Oct 9, 2023
September CPI fell to 3.8%, confirming the July spike was transitory and reinforcing expectations that the BoC would hold at 5.00% through year-end.
What Moved
StatsCan reported September CPI at 3.8%, a welcome decline from the August reading and confirmation that the July spike to 4.0% had been the base-effect anomaly analysts predicted. Core measures also cooperated, with CPI-trim declining to 3.7% and CPI-median holding at 3.8%. The disinflationary trend was reasserting itself, driven by moderating goods prices, easing energy costs, and the lagged effects of 475bps of cumulative tightening filtering through the economy.
Why It Matters
The inflation trajectory entering Q4 was the most benign since the tightening cycle began. For private markets investors, it cemented the "higher for longer" plateau narrative — rates would stay at 5.00% through at least year-end, but the risk of further hikes had diminished materially. This was the Goldilocks scenario for private credit: yields at peak levels with declining risk of additional borrower stress from further rate increases. The forward curve began to price in the first rate cut for mid-2024, giving private credit managers a clear runway to earn elevated yields.
Signal to Watch
The BoC's October decision and accompanying commentary would confirm whether the Bank viewed the inflation progress as sufficient to declare the tightening cycle definitively complete.