After Statistics Canada reported that Canada’s inflation has fallen to its slowest pace in more than three years on Tuesday, marking the lowest annual inflation since March 2021, economists weighed in on what the latest consumer price index (CPI) numbers mean for Bank of Canada.
TD Economics
Francis Fong, managing director and senior economist at TD Economics, told BNN Bloomberg in an interview Tuesday that the latest CPI report was “very well behaved,” and “exactly the kind of thing the (central) bank is looking for when we’re talking about consistent evidence that inflation is moving towards target.”
Statistics Canada reported that the consumer price index (CPI) rose 2.5 per cent in July from a year ago, beneath the 2.7 per cent pace a month earlier. On a monthly basis, the consumer price index climbed 0.4 per cent.
“We’re still seeing very high levels of inflation,” Fong pointed out. “It’s coming in consistent with what the Bank of Canada is anticipating, but we’re likely to still see strong levels of rent inflation on a year-over-year basis. Again, downward trajectory, but still strong levels in both owned and rented accommodation.”
RBC Economics
According to a reaction report by RBC economists Claire Fan and Abbey Xu, the most recent CPI numbers “should be enough to quell concerns about sticky inflation pressures in Canada after two marginal upside surprises in May and June.”
RBC’s report says that price pressures are continuing to “normalize,” with the diffusion index saying the “breadth of inflation in Canada is looking similar to the pre-pandemic norm in 2019.”
The CPI’s yearly readings for both food and energy inflation were “little changed,” according to RBC, as gasoline prices were slightly higher than both last month and July a year ago.
“That in turn means the moderation in headline CPI came from everything else - core ex-food and energy CPI dropped to 2.7 per cent year-over-year in July from 2.9 per cent,” the report said.
Fan and Xu added that the “hurdle for more BoC cuts this year is low,” with sustained expectations for another 25 basis points cut at the next Bank of Canada meeting in September.
Picton Mahoney Asset Management
Geoff Phipps, portfolio manager and trading analyst at Picton Mahoney Asset Management, said in a statement sent to BNNBloomberg.ca on Tuesday that the latest inflation data makes another interest rate cut “basically a sure thing at the upcoming meeting.”
“A growing question is if the BoC will have to consider 50 bps cuts in upcoming meetings given the pace of the economic slowdown, including the mid-6 per cent unemployment rate,” Phipps said in the statement.
He added that incoming GDP data, set to be released at the end of August, will provide “further guidance as to the pace of the economy’s cooling as the last major data release before the Sept. 4 meeting.”