June Inflation Rate Eases, Potentially Setting Stage for Rate Cut 


The headline Canadian inflation rate ticked lower in June compared to a month earlier, potentially priming the Bank of Canada for another interest rate cut later this month. 

Released Tuesday, Statistics Canada’s consumer price index was up 2.7% on a year-over-year basis in June, down a hotter-than-expected the 2.9% gain in May. The decline in the June inflation rate, which was slightly steeper than expected by analysts and economists, was mainly attributed to slower growth in gas prices and lower prices for durable goods, which include things like cars and furniture. 

On the other hand, the price of food purchased from stores was up 2.1% in June after climbing 1.5% in May – marking the second consecutive month that grocery store food prices accelerated. 

Price growth for some food items such as dairy products (+2.0%), fresh vegetables (+3.8%), non-alcoholic beverages (+5.6%), as well as preserved fruit and fruit preparations (+9.5%), accelerated year over year in June, StatsCan said. Moderating the increase in grocery prices were prices for fresh fruit, which fell to a greater extent in June (-5.2%) compared with May (-2.8%). 

Meanwhile, gasoline prices were up 0.4% in June, compared with May, when they rose 5.6%. The slowdown in gas prices was attributed by StatsCan to an announcement from the Organization of the Petroleum Exporting Countries and its partners (OPEC+) to gradually phase out voluntary production cuts later this year and the restart of production for some refineries following shutdowns for spring maintenance.   

The Bank of Canada in June cut its key overnight lending rate by 25 basis points to 4.75%, citing progress in wrestling headline inflation down to its preferred target of 2%.   

With June inflation coming in generally cooler than expected, some economists are now anticipating the Bank of Canada to cut its key overnight lending rate again on July 24. 




Source: DePutter Publishing Ltd.

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