After an unexpected surge in May, Canada’s annual inflation rate slowed to 2.7 per cent year-on-year, Statistics Canada announced on Tuesday, paving the way for a new interest rate cut, according to experts.
The larger-than-anticipated drop came after the Canadian central bank lowered its key rate by 25 basis points to 4.75 per cent in early June, with a further announcement scheduled for July 24.
“The deceleration was largely the result of slower year-over-year growth in gasoline prices, which rose 0.4 per cent in June following a 5.6 per cent increase in May,” the government statistics agency said in a press release.
A 1.8 per cent drop in durable goods prices also contributed to the slower growth of the Consumer Price Index (CPI) in June, Statistics Canada said.
Consumers did, however, pay more in supermarkets, as food prices rose in June and May. Overall, groceries have jumped 21.9 per cent in the three years between June 2021 and June 2024, the federal agency said.
Canada’s annual inflation rate reached 2.9 per cent in May, compared with 2.7 per cent in April, its lowest level in three years.
“This shows that the prior month’s upside surprise in inflation was just a blip in a broader trend of disinflation as demand in the economy remains under pressure, paving the way for a BoC cut next week,” said CIBC economist Katherine Judge.
“A return to tepid consumer price growth likely seals the deal for a follow-up 25bp rate cut from the Bank of Canada next week,” said Royce Mendes, financial analyst at Desjardins.
“Along with significant declines in inflation expectations and a further normalization in corporate pricing behaviour, the latest inflation data build a strong case for continuing the rate cutting cycle without delay,” Mendes added.
The Bank of Canada aims to keep inflation between one and three per cent.
