Key Points
- Canada’s annual inflation rate slowed to 2.7 per cent year-on-year in June.
- This follows an unexpected surge to 2.9 per cent in May.
- The Bank of Canada had lowered its key interest rate by 25 basis points to 4.75 per cent in early June.
- Another rate decision is scheduled for July 24.
- A key factor in the slowdown was a deceleration in gasoline prices, which increased only 0.4% in June compared to 5.6 per cent in May.
After an unexpected surge in May, Canada’s annual inflation rate slowed to 2.7 per cent year-on-year in June, according to Statistics Canada.
This larger-than-anticipated drop has experts predicting another interest rate cut from the Bank of Canada.
The deceleration follows the central bank’s decision to lower its key rate by 25 basis points to 4.75 per cent in early June, with another policy announcement scheduled for July 24.
Key Factors in Inflation Slowdown
Statistics Canada attributed the slowdown primarily to a deceleration in gasoline prices, which rose only 0.4 per cent in June compared to a 5.6 per cent increase in May. Additionally, a 1.8 per cent drop in durable goods prices contributed to the slower growth of the Consumer Price Index (CPI).
However, consumers faced higher costs in supermarkets, with food prices rising in both June and May. Over the three years from June 2021 to June 2024, groceries have seen a significant 21.9 per cent increase, the federal agency reported.
Expert Opinions on the Inflation Trend
In May, Canada’s annual inflation rate had reached 2.9 per cent, up from 2.7 per cent in April, marking its lowest level in three years. The recent figures suggest a return to a broader trend of disinflation, according to economists.
“This shows that the prior month’s upside surprise in inflation was just a blip in a broader trend of disinflation as demand in the economy remains under pressure, paving the way for a BoC cut next week,” AFP quoted Katherine Judge, an economist at CIBC, as saying.
Also Read: Nigeria’s inflation hits 34.19% in June, food inflation surges to 40.87%
Royce Mendes, a financial analyst at Desjardins, echoed this sentiment, stating, “A return to tepid consumer price growth likely seals the deal for a follow-up 25 basis point rate cut from the Bank of Canada next week. Along with significant declines in inflation expectations and a further normalisation in corporate pricing behaviour, the latest inflation data build a strong case for continuing the rate-cutting cycle without delay.”
Central Bank’s Inflation Target
The Bank of Canada aims to maintain inflation within a target range of 1 per cent to 3 per cent. The current inflation trend suggests that the central bank may continue its rate-cutting strategy to stimulate economic activity and maintain price stability.
As Canada’s inflation rate slows to 2.7 per cent in June, the path seems clear for the Bank of Canada to implement further rate cuts. With experts predicting continued disinflation and lower inflation expectations, the central bank is likely to take action to support the economy in its upcoming policy announcement.