Canada Inflation Cools to 2.7%, Bets Rise for Rate Cut Next Week

TEMPO.CO, Ottawa - Canada's annual inflation rate cooled a tick more than expected to 2.7% in June, largely due to softer growth in gas prices, while core inflation measures were marginally down, data showed on Tuesday, July 16.

The inflation reading is the last critical data point before the Bank of Canada's interest rate announcement next week and the easing of consumer prices in June bolsters hopes the bank would cut its key overnight rate by another 25 basis points.

Financial markets advanced their bets for a rate cut at the central bank's July 24 rate announcement to 88% from 82% previously before the data was released.

Analysts polled by Reuters had forecast the inflation rate would come down to 2.8% from 2.9% in May, which was an unexpected rise.

Month-over-month, the consumer price index was down 0.1%, compared with a forecast for no change. This was the first deceleration in the monthly inflation rate since December, Statistics Canada data showed.

Tuesday's data showed that headline inflation was cooler than the BoC's 2.9% inflation forecast for the end of the first half of 2024.

The central bank, in forecasts released in April, said inflation is expected to gradually slow down to under 2.5% in the second half of 2024 before reaching the bank's 2% target in 2025.

The BoC will publish updated forecasts on July 24, along with its rate decision.

Last month, the bank became the first central bank amongst the G7 nations to trim borrowing costs by 25 basis points, after holding it at a more than two-decade high for about a year.

The average of two of the Bank of Canada's preferred measures of underlying inflation - CPI-median and CPI-trim - eased slightly to 2.75% in June from 2.80% in May.

The Canadian dollar shed gains after the data with the loonie trading down 0.1% to 1.3695 against the U.S. dollar, or 73.02 U.S. cents.

The deceleration in headline inflation was largely attributable to a slowdown in gasoline prices, which rose at an annual rate of 0.4% in June, down from 5.6% in May. Excluding gas prices, the CPI rose 2.8% on an annual basis, Statscan said.

An increase in prices for food purchased from stores as well as a smaller decline for cellular services in June offset some cooling in prices.

Excluding food and energy, prices rose 2.9% in June, the same as in May.

Service prices increased 4.8% annually in June, compared with a 4.6% rise in May, while goods inflation slowed to 0.3% from 1%.

REUTERS

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