2024-08-20 20:30:02
Canada’s annual inflation rate slowed to 2.5% last month, in line with economists’ forecasts and boosted expectations for a third straight interest rate cut in September.
According to Statistics Canada, the slowdown in overall inflation growth was broad-based, but price declines were more pronounced in the tourism packages, motor vehicles and electricity sectors.
While housing costs remain the main driver of inflation, the year-on-year price growth slowed to 5.7% last month. In June, the year-on-year increase was 6.2%.
Inflation has remained below 3% since January and has declined steadily, highlighting the significant progress made in addressing high inflation.
“There is still much work to be done to achieve price stability as Canadians feel the pinch and cut back on spending,” wrote Andrew DiCapua, senior economist at the Canadian Chamber of Commerce.
“But we believe the Bank of Canada will continue its policy of rate cuts and will act again in September, prioritizing economic growth amid slowing inflation,” he added.
Improvements in global supply chains and the impact of higher interest rates have helped slow price growth across the economy.
Grocery prices, which once rose more than 10% year-over-year, are now rising at a much more modest pace. In July, they were up 2.1% year-over-year.
Nevertheless, some price pressures remain, particularly in the services-producing sectors.
Prices for services rose 4.4 percent from last year, a trend economists said reflected strong wage growth.
In Quebec, inflation accelerated slightly last month, rising to 2.3% in July from 2.2% in June.
Helping the economy get back on track
Still, analysts mostly expect the Bank of Canada to continue cutting its key interest rate at its upcoming meeting amid a broad slowdown in price growth across the country.
Governor Tiff Macklem acknowledged the central bank was growing concerned about the risk of interest rates remaining too high for too long.
In the latest rate announcement, Mr Macklem said the Governing Council had decided to cut the policy rate, which currently stands at 4.5 per cent, in part to help get the economy back on track.
The central bank will release its next policy rate update on September 4.
In addition to the latest inflation data, the central bank will also need to review second-quarter gross domestic product data at the end of the month.
While most observers expect the central bank to cut its benchmark interest rate by 25 percentage points in September, RBC economist Claire Fan believes weaker-than-expected GDP could prompt the central bank to cut its benchmark rate by half a percentage point.
“If economic conditions deteriorate more quickly than expected, I think it’s entirely reasonable to think they can [réduire les taux] At a faster pace,” M said.I fan.
According to its latest forecasts, the central bank expects the economy to grow at an annualized rate of 1.5% in April-June.
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