A continued drop in inflation may give the Bank of Canada reason to cut rates again
Canada’s Consumer Price Index (CPI) decelerated in June, rising 2.7 per cent on a year over year basis, down from a 2.9 per cent gain in May according to Statistics Canada.
The fall was largely due to a slower growth in gasoline prices, which rose only 0.4 per cent in June, after rising by 5.6 per cent in May. Excluding gasoline, CPI rose by 2.8 per cent in June.
Durable goods prices fell at a rate of -1.8 per cent. Food prices rose, however, at a rate of 2.1 per cent.
On a monthly basis, CPI dropped by 0.1 per cent in June, after a 0.6 per cent rise in May.
Signs of slowing inflation may help support another interest rate cut from the Bank of Canada. While CPI is still above the BoC’s 2 per cent target rate, analysts have said that the odds of a cut at the July BoC meeting next week are roughly 50/50.
US inflation data released last week was also somewhat supportive of a cut by the US Federal Reserve. However, labour markets remain relatively strong in the US and Canada, which may give both central banks pause before they embark on a more drastic cutting cycle.
In addition to a slow decline in gasoline prices and a drop in durable goods, prices for travel tours dropped by 11.1 per cent. Within the durable goods category, used vehicle prices dropped by 4.5 per cent and furniture prices fell by 3.9 per cent.
June marked the second consecutive month of food price appreciation. StatsCan noted in their publication that between June 2021 and June 2024 food prices have increased by 21.9 per cent.
