What does the latest reading mean for the BoC's next decision?
The annual pace of inflation in Canada continued to slow in June, with a lower-than-expected consumer price index (CPI) potentially leaving the door open for the Bank of Canada to cut interest rates again next week.
Statistics Canada said on Tuesday (July 16) that the overall inflation rate fell to 2.7% last month, spurred in part by cooler gasoline price growth, after an unanticipated uptick in May. A survey of analysts conducted by Reuters revealed expectations of a 2.8% inflation rate in June.
Mortgage interest costs continue to represent the most sizeable contributor to the overall year-over-year change in prices, spiking by 22.3% compared with June 2023. Home and mortgage insurance jumped by 9.2%, while rent across the country was up by 8.8% over the same time last year.
Passenger vehicle insurance premiums and the cost of food purchased from restaurants also increased, although declining prices for telephone services, traveller accommodation, furniture, and digital computing equipment and devices helped offset some of those gains.
The June figures mean the inflation rate has landed within the Bank of Canada’s target range of 1% to 3% for a sixth consecutive month, with the drop from May helping boost confidence that the central bank will lower interest rates again in its July 24 decision.
Moderating inflation and a labour market cooldown are two of the main factors experts are watching as they weigh up the prospect of further rate cuts by the Bank in the coming months.
Nonetheless, June’s figures also contained some indication that certain inflation measures closely watched by the central bank are proving surprisingly sticky.
A three-month moving average of the Bank’s core inflation measures increased to an annualized pace of 2.91% compared with 2.52% in May, according to Bloomberg, presenting a potential curveball for decisionmakers as they mull how quickly rates can come lower.
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