Inflation Rate in Canada
Canada’s inflation rate has fallen to 1.7 percent in July, which is slightly more than expected. This decrease could lead to the Bank of Canada cutting interest rates again. The main reason for this decline is the drop in gasoline prices, which is a result of the removal of the consumer carbon price in the spring.
Factors Contributing to the Decline
The decline in inflation rate was led by a decrease in gasoline prices. However, grocery prices have risen at a faster pace of 3.4 percent annually. Shelter costs have also increased by 3 percent from last year, driven by a 5.1 percent rise in rent. Despite these increases, the overall inflation rate has decreased, which could pave the way for an interest rate cut.
Reaction from Financial Markets
Financial markets have reacted to the latest inflation data by increasing the odds of an interest rate cut in September to 36 percent from 26 percent the day before. Economists have also responded positively to the report, noting that the slowdown in inflation could lead to an interest rate cut later this year.
Economists’ Predictions
Economists believe that the slowdown in inflation could lead to an interest rate cut. CIBC senior economist Andrew Grantham said, "An easing in inflationary pressures during July means that we have successfully cleared one obstacle on the path towards a potential September interest rate cut." The Bank of Canada has held its key interest rate steady at 2.75 percent during its last three announcements, but it may consider cutting rates if the economy stalls and inflation remains low.
Impact of US Tariffs
US tariffs have stalled economic growth in Canada, but the economy has not gone into freefall. The USMCA trade pact has allowed many businesses to avoid steep levies imposed by US President Donald Trump. Modelling by the Bank of Canada suggests that if the tariff situation doesn’t change, Canada will likely avoid a recession and inflation will remain around the 2 percent target.
Core Measures of Inflation
The Bank of Canada keeps a close eye on its preferred core measures of inflation, which did not ease in July and continue to hover around 3 percent annually. However, BMO chief economist Douglas Porter noted that the three-month annualized trend for those measures eased to 2.4 percent in July. If this pace is maintained and the economy remains soft, it could set the stage for the Bank of Canada to cut interest rates.
Conclusion
In conclusion, Canada’s inflation rate has fallen to 1.7 percent in July, which could lead to an interest rate cut by the Bank of Canada. The decline in gasoline prices and the slowdown in inflation have contributed to this decrease. While the economy has been impacted by US tariffs, it has not gone into freefall. Economists believe that the Bank of Canada may consider cutting interest rates if the economy stalls and inflation remains low. The central bank’s next interest rate announcement is scheduled for September 17, and it will be closely watched by financial markets and economists.
