8/20/2024
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Posted in Canadian Economy and Interest Rates by Vanguard Realty | Back to Main Blog Page
Inflation is continuing to ease, leaving the door open to another Bank of Canada rate cut in September, economists say.
Canada’s inflation rate continued its downward trajectory in July, with the headline Consumer Price Index (CPI) slowing to 2.5%, according to Statistics Canada.
This marks a decrease from June’s 2.7%, in line with market expectations.
The Bank of Canada’s preferred measure of core inflation also showed a downward trend. The CPI-median came in at 2.4% and the CPI-Trim was reported at 2.7%. These figures reflect a broader easing of inflationary pressures across various sectors.
The deceleration in inflation is attributed to base-year effects, where current price increases are compared to a period of high inflation from the previous year.
Specifically, prices for travel tours decreased by 2.8% year-over-year, while passenger vehicle prices fell by 1.4%.
Shelter costs, a significant component of the CPI, experienced their slowest increase in 17 months, rising by 5.7% compared to 6.2% in June.
This moderation in shelter costs was driven by a slowdown in rent inflation, which eased to 8.5% year-over-year from 8.8%, and a reduction in mortgage interest costs, which increased by 21% year-over-year, down from 22.3% in the previous month.
The ongoing drop in inflation fits well with what the Bank of Canada has been predicting and boosts the chances of another rate cut. Many analysts expect the central bank to lower its key interest rate by 0.25% at its upcoming meeting on September 4.
“The July CPI report should further cement a 25 bp rate cut from the Bank of Canada in September,” noted BMO’s Benjamin Reitzes. “There’s no urgency for policymakers to act more aggressively at this point, but rate cuts will keep coming as inflation continues to move toward 2% and the economy sports a sizeable output gap.”
Looking ahead, the August inflation data will be released on September 17, 2024. Analysts and economists will closely scrutinize this report for additional clues about the trajectory of inflation and the Bank of Canada’s future monetary policy decisions.
TD’s James Orlando said that with inflation risks fading, the central bank’s focus has shifted to addressing weakness in the rest of the economy.
“Given that the policy rate remains at restrictive levels, even after two rate cuts in June/July, there is plenty of room for the BoC to keep cutting over the rest of this year,” he wrote.
Source: Canadian Mortgage Trends
Bank of Canada, Bank of Canada Benchmark Rate, Canada Inflation Rate, Canada Living
