New data suggests softening of price rises in April
A key measure of inflation south of the border, the one that the Fed prefers, softened in April, with traders more confident of at least one interest rate cut ahead.
The Personal Consumption Expenditures price index was up 0.2% month-over-month and 2.8% year-over-year when food and energy are excluded while headline PCE was in line with expectations with a monthly rise of 0.3% and an annual 2.7% increase.
Even if the data gives the Fed some optimism it remains likely that the BoC will be the first of the two central banks to begin easing back from the current elevated rates.
The data from the US commerce department was seized on by traders as increasing the likelihood that the Fed will cut rates in September, with Reuters reporting a 53% chance of that happening now, up four percentage points from before the data was released.
"The PCE data confirms price increases aren’t as sticky as feared, keeping hopes of at least one rate cut on the table," said David Russell, global head of market strategy at TradeStation told the news outlet.
However, others are not so sure that things are quite so optimistic, given that the stats are still above the Fed’s 2% inflation target and the Fed’s tone when it announced a hold on rates last month.
“The core index came in at 2.8%. That’s fine, but it’s been trading in a range for five months now, and that’s pretty sticky to me,” Dan North, senior economist for North America at Allianz Trade, told CNBC.
Many analysts are dovish on the timing of the first Fed cut, assuming there is at least one. November is seen as a key contender with the meeting concluding two days after the presidential election.
