Breaking News: Canada's CPI Unexpectedly Declines in August, Prompting Potential Rate Cuts by Bank of Canada
In a surprising turn of events, Canada's Headline Consumer Price Index (CPI) dropped by 0.2% month-on-month in August, falling below both analyst and consensus forecasts. This unexpected decline, coupled with a year-on-year return to 2.0%, indicates a softening in consumer demand which may impact the Bank of Canada's assessment of inflation risks.
Core inflation measures also exhibited a downward trend, with the three-month core inflation rate remaining at 2.4%, within the target range for several months. The decrease in CPI was largely driven by notable price drops in discretionary goods and services such as public transportation, recreation, clothing, and communications.
Citi analysts predict that the Bank of Canada will likely revise its growth forecasts downward in the upcoming October Monetary Policy Report and may reduce interest rates by 50 basis points on October 23. This decision is expected regardless of the Federal Reserve's rate cut decision in their meeting.
Despite the overall weakness in the CPI, shelter inflation showed some resilience as rent prices rebounded by 1% month-on-month. However, analysts caution that this component could remain volatile, especially with potential immigration limits affecting population growth by 2025.
While core inflation has softened in recent months, there is a risk of persistence in core inflation over the next few months. Economic indicators suggest the possibility of further rate cuts as economic activity in the US and Canada shows signs of weakening.
In conclusion, the unexpected decline in Canada's CPI and the potential rate cuts by the Bank of Canada could have significant implications for consumers and investors alike. It is important to stay informed and monitor developments in the market to make informed decisions about your finances and investments.