Monday Market Minute | Oct 9, 2023

Inflation falls to 3.8% as the disinflation trend resumes after the summer scare

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.

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