Canada's Inflation Rate Hits 40-Month Low, Bank of Canada Expected to Cut Rates Again in September
The annual inflation rate in Canada dropped to a 40-month low of 2.5% in July, meeting expectations. Core inflation measures also eased, indicating that the Bank of Canada is likely to reduce interest rates once again in September.
Analysts had predicted a cooling inflation rate of 2.5% compared to 2.7% in June. The consumer price index rose by 0.4% on a monthly basis, aligning with forecasts from Statistics Canada.
The decline in headline inflation was primarily driven by lower prices for travel tours, passenger vehicles, and electricity, according to the statistics agency. This brings the inflation rate closer to the central bank's target of 2%.
With the easing inflation, the Bank of Canada is expected to continue lowering borrowing costs. Market expectations suggest a 25 basis point cut at the next rate announcement on Sept. 4, with the possibility of three more cuts this year.
Following the CPI report, the Canadian dollar saw a slight increase against the U.S. dollar, while bond yields for the two-year Canadian government bonds declined.
The Bank of Canada's preferred measures of underlying inflation, CPI-median and CPI-trim, also slowed down. This indicates a possible trend towards weaker growth in the economy.
Overall, the cooling inflation rate in Canada could have implications for consumers, investors, and businesses. Lower inflation may lead to lower interest rates, making borrowing more affordable. However, it could also signal slower economic growth, impacting investment decisions and overall financial stability. It's important for individuals to stay informed about these economic indicators and consider how they may affect their personal finances.