MNI: Canadian Inflation Is Slowest In More Than Three Years
Canadian consumer prices advanced at the slowest pace in more than three years in July, a broad-based move led by travel services, autos and even moderation in elevated housing costs, the kind of move economists have said makes it likely the central bank will keep cutting interest rates.
Statistics Canada's consumer price index slowed to a 2.5% pace in July from a year earlier from June's 2.7%, which is also one-tenth slower than the economist consensus. The agency said it was a broad-based moderation, the kind of slowdown Bank of Canada officials have said they wanted after cutting borrowing costs for a second meeting in July and saying more moves are justified if prices keep moving back to target.
Car prices fell the most since 2012 in July with the 1.4% decrease reflecting an easing of shortages after the supply-chain squeeze triggered by the Covid pandemic. Travel tours was the biggest source of downward pressure with a 2.8% decline versus June's 7.4% increase. That swing reflects a base effect following a burst of travel following the end of most pandemic restrictions.
Even accounting for those potential one-offs, core measures tracked by the Bank were also the slowest since April 2021 in July. The median index slowed to 2.4% from 2.6% and the trim to 2.7% from 2.8%. The central bank has said core measures on average will slow to about 2.5% in the second half of this year and total CPI will go even lower for a bit before settling at the 2% target sometime next year.
Governor Tiff Macklem had said he could keep cutting rates even if there are some inflation bumps along the way. Many economists see reductions at two or even all three of the remaining decisions this year, citing broader weakness in the job market and economic growth.
The risk of re-igniting one of the world's most stretched housing markets with rate cuts also appears to be fading. Tuesday's CPI report showed some moderation in rental rate increases to 8.5% from 8.8% and overall shelter costs to 5.7% from 6.2%.
The Bank of Canada sets interest rates to keep inflation in the middle of a 1% to 3% target band and total and core measures have been within that range for most of this year.