Inflation drops to 2.7% in June due to slower gas price growth. (Photo credit: BNN Bloomberg)


July 17, 2024 Tags:

Economists are optimistic following a surprising decline in Canada’s national inflation rate, suggesting that the Bank of Canada might consider another interest rate cut later this month. According to Statistics Canada, the annual inflation rate fell to 2.7% in June, down from 2.9% in May.
This decrease is primarily attributed to a slowdown in gasoline price increases. While gasoline prices did rise by 0.4% in June, this was a significant drop from the 5.6% jump seen in May. When excluding gasoline from the calculations, the consumer price index actually rose by 2.8% in June.

Another contributing factor to the reduced inflation rate was the drop in prices for durable goods, which fell by 1.8% year-over-year in June, following a smaller decline of 0.8% in May. CIBC senior economist Katherine Judge noted that the latest inflation figures provide the Bank of Canada with the necessary information to potentially lower interest rates in their upcoming meeting.

Judge pointed out that core inflation, which excludes food and energy prices due to their volatility, increased by only 0.2% on a seasonally adjusted basis. This is a slight decline from the previous month’s increase of 0.3%. She remarked that the earlier month’s unexpected inflation spike appears to be an anomaly in an ongoing trend of decreasing inflation, as the demand within the economy remains under pressure.

While grocery prices saw a rise of 2.1% year-over-year in June—up from 1.5% in May—this growth remains moderate compared to historical trends. Benjamin Reitzes from BMO highlighted that the increase in food prices is something to monitor closely, as they significantly influence public perceptions of inflation. Everyday items, like groceries, shape how consumers view economic conditions.

Some specific increases in grocery prices included a 3.8% rise in fresh vegetables and a 2% increase in dairy products. Notably, preserved fruit prices jumped by 9.5%, while non-alcoholic beverage prices rose by 5.6%. However, the price of fresh fruit fell by 5.2% in June, which helped keep overall grocery costs in check.

This latest inflation report is particularly important as it precedes the Bank of Canada's next interest rate decision, scheduled for July 24. Earlier this month, the central bank had already reduced its benchmark interest rate by 0.25 percentage points to 4.75%.

The report also indicates that Canadian consumers are becoming more cautious with their spending, especially in areas like recreation and clothing. Spending on shelter has also softened, with rent prices showing only a 0.1% increase—the lowest in nearly two years. This moderation in shelter costs has contributed to the overall inflation slowdown.

Looking ahead, Reitzes believes that achieving the Bank of Canada’s target inflation rate of 2% will be a gradual process, likely taking until mid to late 2025. He noted that while the trend toward this target is encouraging, many unpredictable factors could influence future inflation, such as energy and food prices, as well as political uncertainty.

How useful was this post?

Click on a star to rate it!

Average rating 0 / 5. Vote count: 0

No votes so far! Be the first to rate this post.

You may also like

TSX Ends Lower While U.S. Markets Climb with Earnings Hope

Canada’s leading stock index ended the week with a small dip, just as U.S. markets moved upward, powered by early....

Big Tech Helps Wall Street End a Wild Week on a High Note

Wall Street closed a bumpy week on a positive note Friday, thanks to a strong performance from major tech companies.....

TSX Surges Over 250 Points as U.S. Markets Gain for Third Day

Canada's main stock index closed sharply higher on Thursday, climbing more than 250 points in a widespread rally, with mining....

Stocks, Dollar Climb as Trump Eases Pressure on China Tariffs

Global financial markets showed signs of recovery this week as U.S. President Donald Trump backed away from aggressive tariff threats....

Canada Hits Pause on Climate and Diversity Disclosure Rules

The Canadian Securities Administrators (CSA) has announced an indefinite halt to its plans for introducing stricter climate and diversity reporting....

Wall Street Surges as Trump Eases Tariff Talk and Fed Criticism

Wall Street had a strong rally on Wednesday, following a global market surge, as President Donald Trump softened his stance....

Wall Street Bounces Back After Monday Dip, Dollar Steady

After a turbulent start to the week, Wall Street made a strong comeback on Tuesday, wiping out Monday’s steep losses.....

 Markets Rebound: TSX and Wall Street Post Strong Gains

Canada’s main stock index saw a sharp rebound Tuesday, rising nearly 300 points as energy, financial, and metal sectors pushed....

Big Tech’s ‘Magnificent Seven’ reels as Trump shakes market

As Big Tech companies prepare to release their quarterly earnings, they're grappling with political uncertainty that has sent shockwaves through....

Wall Street Sinks as Global Trust in U.S. Takes a Hit

Wall Street plunged on Monday, with major stock indexes taking a steep fall as investors around the world grow uneasy....

Stock Slide After Long Weekend: TSX and U.S. Markets Fall

Canada’s main stock index took a sharp dive on Monday, dropping nearly 200 points as trading resumed after the long....

Trump's Trade War Expands: Pharma and Chip Industries Targeted

The Trump administration has opened a fresh investigation into the import of pharmaceuticals and semiconductor chips, citing national security concerns.....