Canadian inflation got a bump in last month’s report; new data shows it was just noise. Statistics Canada (Stat Can) data shows the Consumer Price Index (CPI) growth rate slipped in June. The headline inflation measure came in below analyst expectations, clearing the way for the Bank of Canada (BoC) to cut rates further this month. Most experts see this happening, but some still see the central bank exercising caution and waiting until September.
Canadian Inflation If Falling Faster Than Anticipated
Canadian inflation slowed much more rapidly than experts had anticipated. Headline annual growth fell to 2.7% in June, down 0.2 points from a month prior. Most of the downward pressure is the result of falling gasoline prices. Excluding gas shrinks the rate of decline in half.
Canadian Inflation Is Trending Lower
Source: Statistics Canada.
“Slower inflation in June was largely due to a drop in gasoline prices, and lower prices for durable goods such as used cars and furniture,” explains Michael Davenport, an economist at Oxford Economics.
Adding, “… services inflation rose 0.2ppts to 4.8% y/y in June, its second consecutive monthly increase.”
Canadian Inflation Slowed For Goods, But Accelated For Services
Source: Statistics Canada.
Most Experts See Bank of Canada Cutting Rates, But Not All
Generally speaking, service inflation doesn’t seem to be much of a problem, according to experts. The market has already priced in the cut at next week’s meeting, though Davenport still sees the BoC erring on the side of caution.
“This opens the door for a BoC cut in July, but we still think a pause is more likely before another 25bp cut in September,” he explains.
His logic may be sound, but few others agree. In response to this morning’s CPI data, economists at RBC and CIBC shared expectations of a rate cut by the end of this month. The latter even argues it’s needed to help engineer a soft landing with upcoming mortgage rate renewals.
BMO even updated their forecast this morning. The bank expected a September cut until today. The results of yesterday’s BoC Outlook and today’s CPI data was enough to sway their opinion.
“Today’s CPI report, taken with the weak Q2 Business Outlook Survey, the ongoing march higher in the jobless rate, and increased economic slack are expected to provide policymakers with enough confidence that inflation will continue slow to ease policy rates 25 bps to 4.5% on July 24,” explains Benjamin Reitzes, a strategist at BMO.
Regardless of whether rates are cut this month, those expecting a boost to housing activity may be disappointed. The overnight rate primarily impacts variable-rate mortgages, and they currently have much higher interest costs than fixed rate mortgages. A cut may provide a psychological boost, but that’s about it. There are already much cheaper options readily available for borrowers, they just aren’t taking advantage of them.
Rates need to be dropped to 0% to stimulate the economy and support homeowners. Trudeau needs to get involved and do the right thing. House prices must be supported.
Inflation going down is great. A real problem is so many are leaving Canada for better opportunities in the USA. Prices crash as people leave. Game over for Canada for th next 20 years.
the last line says it all.
Better Dwellings may have mixed feelings about whether the Bank of Canada should lower the bank rate tomorrow based on the June CPI update, but Benjam Reitzes of BMO Capital Markets thought it justified a rate drop, and I would agree. The Bank of Canada was WAY too slow in raising rates when inflation was on the way up. It doesn’t want to make the same mistake when the trend was going down.
StatCan noted in its June update: “Lower prices for traveller accommodation (-20.2%) contributed to the slowdown in Quebec, stemming from a base-year effect.” This was part of a bigger story, where traveller accommodation’s annual inflation rate (-8.5%) was the second largest downward contributor to the June inflation rate after telephone services (-9.3%). The analysis provided for component contributions to change in the StatCan reports is very substandard compared to other advanced countries. StatCan provides rankings but not point estimates of component contributions to change, unlike virtually all other advanced countries, although these are calculated internally. More crucially, in this case, telephone services annual inflation rate decrease was more severe in May than in June, whereas in May the decrease for traveller accommodation for just 1.1%. So it seems likely that traveller accommodation provided the biggest contribution to the decline in the annual inflation rate from May to June, although StatCan does not provide any table that would confirm this.
Returning to the Quebec traveller accommodation index, it went from a May inflation rate of -7.6% to a June inflation rate of -20.2%, a difference of -12.6%. A useful rule of thumb is that the difference between these annual inflation rates is approximately equal to the monthly inflation rate for June 2024 (5.6%) and that for June 2023 (-22.1%). This is -16.5%, considerably larger in absolute value to the difference in the annual rates, large as it is. This is due to the 11-month inflation rate between June 2023 and May 2024 (-24.4%), which substantially dampened down both exit and entry effects on the difference between the annual inflation rates. Thus, the exit effect, which for some reason StatCan chooses to call a base-year effect, came in at -16.7%, much smaller in absolute value than the monthly inflation rate for June 2023.
Nah, that’s not how news works. They don’t write about their feelings, they’re referencing that BMO didn’t change officially change their cut forecast and reiterated the call 1 business day prior, as per the article previously in the queue.
btw the analyst you’re quoting isn’t even the one who makes the bank’s call. Joe Blow at the branch also said housing to the moon.