AUS
NZ
UK
CA
USA
IND
Recent data indicates that Canada's annual inflation rate for August has declined to its lowest level since March 2021. This trend aligns with predictions from economists who anticipate that the consumer price index (CPI) report, set to be released by Statistics Canada, will show a 2.1 percent increase in prices compared to the previous year. This is a decrease from the 2.5 percent annual rise reported in July. It is also projected that inflation remained stable on a month-over-month basis.
Douglas Porter, chief economist at BMO, suggested that unless unforeseen factors arise, the upcoming inflation reading should be relatively favorable. Similarly, Nathan Janzen and Claire Fan of RBC indicated that the anticipated August inflation rate would slightly exceed the Bank of Canada's two percent target. They noted that the expected slowdown is primarily due to a decrease in gasoline prices. Additionally, the Bank of Canada’s preferred core CPI measures are projected to trend lower, with the three-month annualized growth rate expected to ease from 2.6 percent in July.
The Bank of Canada (TSX:RY)has demonstrated a readiness to accelerate reductions in its key lending rate if economic conditions permit. Earlier this month, the Bank reduced its key lending rate by a quarter-percentage point, marking the third consecutive rate cut, bringing it to 4.25 percent. Governor Tiff Macklem remarked that if future CPI data significantly deviates from expectations, a larger rate adjustment might be warranted. Conversely, if inflation proves to be stronger than anticipated, the pace of rate cuts could be moderated.
Inflation has remained below three percent since January, and concerns about a resurgence in price growth have lessened as economic conditions have softened. Despite the progress, Porter believes that the current inflation rate does not necessitate a more aggressive rate-cutting strategy. He forecasts that the central bank will continue to reduce its key lending rate by a quarter-percentage point at each meeting until July 2025, targeting a rate of 2.5 percent by that time. This forecast follows recent data showing that Canada's unemployment rate rose to 6.6 percent in August from 6.4 percent in July.
Porter also mentioned that if inflation continues to decrease, the Bank might expedite its rate reduction schedule. Shelter costs, including high rents and mortgage payments, have been the primary contributors to inflation. However, excluding housing costs, inflation in Canada and the U.S. remains just above one percent. With moderating rent increases and anticipated reductions in mortgage interest costs, it is expected that shelter costs will contribute less to inflation moving forward.
In the U.S., economists predict that the Federal Reserve will announce its first rate cut in four years during its upcoming meeting on Wednesday.
