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Many economists expect July inflation The data released this week will not stop Bank of Canada From another interest rate It will be cut when the next decision is made in September.
Statistics Canada will release its consumer price index for July on Tuesday, giving the central bank its last look at the latest inflation trends before its interest rate decision scheduled for Sept. 4.
“The easing of inflationary pressures in Canada has slowed in recent months,” Royal Bank of Canada economists Nathan Janzen and Claire Fan said in a report on Friday. Inflation rate fell to 2.7%.
Royal Bank of Canada expects inflation to remain at this level in July.
On the other hand, Bank of Montreal is still calling for a cut in annual interest rates to 2.6 per cent, despite forecasting higher gasoline and travel costs to add to inflationary pressures in July.
Benjamin Reitzes, head of Canadian rates and macro strategists at BMO, said in a note Monday that headline inflation should continue to decline, largely due to the base year effect, or the impact of changes in the CPI basket on inflation this time last year.
Stephen Brown, deputy chief North American economist at Capital Economics, said travel costs had become a thorn in summer inflation calculations.
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He told Global News earlier this month that while seasonal adjustments typically lead to higher travel prices in the summer, the surge in demand for vacations and air travel since the outbreak has had an outsized impact on inflation.
“We’ve experienced more of a seasonal spike than normal, and that hasn’t been corrected yet. So there are some upside risks to inflation compared to what the central bank expected in July,” he said.
But whether overall inflation cools, remains stable or rises slightly in July, most economists expect the Bank of Canada will likely cut interest rates again in September.
Brown noted that if price pressures accelerate in July because of travel costs, this is likely to be a temporary phenomenon that central bank policymakers can ignore.
Reitz agreed that rising inflation is “unlikely to have much of an impact on the Bank of Canada” because the Canadian economy remains in a “troubled situation” and faces significant “deflationary pressures.”
Canada’s unemployment rate has been rising this year. In July, it remained at 6.4%. 2,800 jobs were lost.
In discussing its decision to cut its benchmark interest rate for a second straight time in July, market watchers noted a change in tone from the Bank of Canada, with more concern about cracks in the labour market and worries that inflation could fall too low, rather than staying above its 2 per cent target.
Jensen and Fan noted recent assurances from Bank of Canada Governor Tiff Macklem that the central bank is increasingly confident that even though inflation may be “way down,” it will continue to fall.
“The Bank of Canada is concerned with where inflation is headed, not where it is,” they wrote.
“Continued weakness in the economy and labour market means inflationary pressures in Canada will ease further.”
Royal Bank of Canada expects a 25 basis point rate cut at each of the two meetings in September and October.
© 2024 Global News, a division of Corus Entertainment Inc.
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