Inflation in Canada plummets: Canada’s inflation rate fell to a 40-month low of 2.5 per cent in July, in line with forecasts and signaling a possible further interest rate cut by the Bank of Canada next month, data showed on Tuesday. Analysts had anticipated a decline to 2.7 per cent in June, with the consumer price index rising 0.4 per cent month-on-month, also in line with expectations, as reported by Statistics Canada.
Travel, vehicle and electricity costs are falling
The decline in inflation was driven by lower costs in tourist travel, passenger vehicles and electricity, the agency noted. This marks the closest inflation rate to the Bank of Canada’s 2 per cent target since March 2021, when inflation was at 2.2 per cent as the economy began to recover from the pandemic. The data supports the expectation that the Bank of Canada will cut its policy rate again in September. Following recent rate cuts, which brought the policy rate to 4.5 per cent, markets are anticipating another 25 basis point reduction in the Sept. 4 announcement, with additional cuts expected later in the year.
Canadian dollar and bond yields move
The Canadian dollar rose 0.04 per cent to 1.3628 against the US dollar, or 73.38 US cents, after the report. Meanwhile, two-year Canadian government bond yields fell 3.5 basis points to 3.416 per cent. Despite recent rate cuts, the Bank of Canada has expressed concerns about possible slower growth. Two key inflation measures, the CPI-median and the CPI-cut, fell to their lowest levels since April 2021. The CPI-median declined to 2.4 per cent from 2.6 per cent, while the CPI-cut fell to 2.7 per cent from 2.8 per cent. Contributing to the slowdown, tourist travel prices fell 2.8 percent year-on-year in July after a 7.4 percent rise the previous month, and passenger vehicle prices declined at the fastest pace since November 2012. Goods prices rose 0.3 percent year-on-year, maintaining the same rate as in June, while services inflation moderated to 4.4 percent from 4.8 percent.(With contributions from Reuters)
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