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The Royal Bank of Canada (TSE:RY) anticipates that the Canadian inflation figures set to be released on Tuesday, June 25, 2024, will indicate a further reduction in price pressures. The consumer price index (CPI) growth is projected to decrease to 2.6% year-over-year from April's 2.7%. This marks the fifth consecutive month that annual price growth has remained within the Bank of Canada’s (BoC) target range of 1% to 3%.
Gasoline and Food Prices See Reductions
In May, gasoline prices declined in tandem with global oil prices, contributing to the overall easing of inflation. Additionally, food price growth is expected to have continued its downward trend. These factors are instrumental in the anticipated reduction in the CPI growth rate.
Core Inflation Measures in Focus
The BoC is particularly focused on core inflation measures, which provide a clearer picture of underlying inflation trends by excluding volatile items like food and energy. The three-month rolling averages for the CPI-trim and CPI-median measures are expected to increase slightly but remain relatively low. Over the past two months, both measures have been below the BoC's 2% inflation target, indicating a broadly based slowdown in price growth. The share of consumer products experiencing inflation above a 3% annual rate has returned to its historical rate as of April, reflecting the easing breadth of inflation pressures.
Economic Growth and GDP Projections
RBC expects a 0.3% increase in April's gross domestic product (GDP), aligning with preliminary estimates from Statistics Canada. This growth is primarily attributed to a rise in oil production and drilling activity, driven by the impending start of the Trans Mountain Expansion (TMX) pipeline service. Manufacturing output is anticipated to remain relatively stable, with a 0.4% increase in sales volumes drawn from existing inventories rather than new production. Retail sales volumes saw a modest rise of 0.5% in April, but preliminary data suggests a decline in May, indicating a potential slowdown. Consequently, RBC projects Q2 GDP growth to align closely with its annualized forecast of 1.4%, suggesting another decline in per-capita output.
Labour Market and Employment Trends
The April Survey of Employment, Payrolls and Hours (SEPH) data will be closely monitored for further signs of softening in the labor market. Job openings, which are not captured in the timelier Labour Force Survey, are expected to continue decreasing as labor demand slows.
U.S. Economic Indicators
RBC also provided insights into U.S. economic trends, predicting a slight increase in personal consumption from 0.2% to 0.3% in May, supported by a 0.1% rise in retail sales. Personal income is expected to have increased by 0.3%, driven by a modest rebound in wage growth (0.4%).
