Canadian inflation falling

Canada’s headline inflation reading took another step towards the magic 2% number by slowing to an annualized rate of 2.8% in June. This is the slowest annual pace since March 2021, and is below market expectations for a 3% reading. Statistics Canada reported that on a monthly basis, headline inflation advanced 0.1% in June after reading 0.4% in May. Source: Statistics Canada Core inflation, which excludes more volatile items like food and energy, also continued to slow in June, albeit at a slower pace. The Bank of Canada’s preferred measure of core inflation, average CPI and consumer price index fell to 3.9% and 3.7%, respectively. However, on a three-month year-over-year basis, Median held steady at 3.6% and Trim accelerated to 4%. “The June CPI report had a little something for everyone, as the headline rate slowed more than expected, but the Canada Council’s core metrics held steady,” BMO’s Benjamin Reitzes wrote. Mortgage interest costs remain inflationary Mortgage interest costs continued to rise for Canadians in June, driven by the Bank of Canada’s continued tightening of monetary policy. The mortgage interest cost index, a subcomponent of headline inflation measures, rose at an annualized pace of 30.1% in June, up from 29.9% in May. Excluding higher mortgage costs, Statistics Canada said inflation would be 2% in June. While that per capita indicator is up more than 30% year-over-year, the effective dollar mortgage interest costs as of the first quarter are up nearly 70% over the past year, according to recently released data from Statistics Canada. Source: Statistics Canada A BoC rate hike still on the table With fundamental effects currently contributing to easing, some are suggesting that headline inflation could pick up again in the coming months as these fundamental effects start to wear off. CIBC’s Andrew Grantham noted: “Inflation is likely to rise again above 3% in the coming months, as the underlying effects from lower petrol prices become less generous.” “However, sticking to core measures of inflation has been a concern for the BoC, and with the CPI trim and mids showing little progress towards their target range, there remains a very real risk that rates could be raised again after the summer.” Others, however, believe that the Bank will be willing to remain on the sidelines for the time being to keep an eye on the data coming between now and the monetary policy meeting on September 6th. “We still expect the full impact of the rate hikes so far to come gradually, slow spending during the second half of this year, and for that push the central bank back to the sidelines without any further rate hikes this year,” noted Claire Fan of RBC. Economics. Randall Bartlett of Desjardins agreed, adding that the bank had given until mid-2025 for inflation mitigation to target. “Given that the Bank has considered pausing at this month’s meeting, the better-than-expected inflation result reinforces our expectation to maintain the overnight rate at 5% for the remainder of the year,” he noted.

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