Slowing inflation in June sets the table for a July rate cut from BoC

  • After an upside surprise in May, inflation trends in Canada largely resumed lower in June with headline CPI dropping to 2.7% from 2.9%.
  • The decline in headline inflation mostly reflected easing in energy CPI growth (to 0.5% year-over-year in June) following a 3% drop in gasoline prices month-over-month from May. That was enough to offset a rise in food inflation to 2.8% from 2.4% in May.
  • June was the second month that growth in food prices accelerated. On a monthly seasonally adjusted basis, food prices rose at a 0.6% average rate in each of May and June, much faster than the -0.03% pace between January and April this year.
  • Excluding food and energy, core CPI held unchanged at 2.9% year-over-year from May. Other “core” CPI measures that the Bank of Canada pays close attention to, including CPI trim and CPI median both rose at a slower 0.2% (seasonally adjusted) in June. That leaves the yearly reading for CPI trim unchanged at 2.9%, and for CPI median slightly lower at 2.6%.
  • The “supercore” CPI measure, i.e. BoC’s trim services ex-shelter index again rose by a larger 0.3% in June on a seasonally adjusted basis, matching the reading in May. That pushed the three-month annualized reading of the same measure higher to 3.4% in June from 3%.
  • Nonetheless, from the BoC’s perspective the broader picture remains that inflation pressures are easing in Canada – the closely watched 3-month rolling average increases in the preferred core measures rose but that was following a string of earlier downside surprises so the 6-month rolling average continued to ease.
  • On the goods side, persistent unwinding in global supply chain challenges and diminishing demand over the past years continue to feed through to lower goods inflation in Canada. In June, prices for durable goods were 1.8% below a year ago, driven by price drops in used cars (-4.5%) as auto inventory improves, and in furniture (-3.9%).

    • Bottom line: June’s CPI print was a small relief after an upside surprise in May, with headline inflation matching consensus expectation prior to the release. Bank of Canada’s preferred CPI trim and CPI median both dropped lower on a monthly basis although the narrower “supercore” measure held slightly higher. Yesterday’s second quarter release of the BoC’s Business Outlook Survey largely confirmed further normalizing in a few key areas that the central bank has deemed critical to future inflation trends, including firms’ pricing behaviour, their expectations for inflation in the future as well as wage growth. All told, we expect the BoC will carry on with easing the monetary brakes on a weak economy, and follow up with another rate cut at its July meeting next week.

  • Headline inflation slowed in June due to slower energy price growth
  • The 3-month average of the Bank of Canada’s preferred core measures saw an uptick, but the 6-month average held right around the 2% inflation target
  • Most Canadian wage measures are showing slower growth – consistent with softening labour markets
  • The latest BOS survey indicated firms and consumers have lowered their inflation expectations for the next year in Q2/24.
  • Canadian businesses’ believe that their input/selling price growth will continue to slow, suggesting lower inflation in the year ahead.

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  • Year-over-year headline inflation edged higher in May but energy price growth slowed and food inflation was little changed
  • BoC’s key inflation measures ticked slightly higher on three-month rolling average basis, but still close the 2% target
  • The breadth of price pressures has narrowed to pre-pandemic level in Canada
  • A lower six-month rolling standard deviation of ‘supercore’ prices indicated a more stable and predictable inflation environment
  • Inflation for renters is increasing faster than inflation for homeowners

  • Headline inflation slowed again in April despite higher energy costs, price growth for groceries also slowed.
  • Bank of Canada’s closely monitored core measures all dropped lower on a year-over-year basis and were much lower than the peak levels in mid-2022.
  • The scope of inflationary pressures continues to narrow in Canada, comparing to the U.S. where pressures are again spreading in early 2024.
  • Unit labour costs are high but expected to trend lower in the future, as wage growth slows.

  • March’s headline inflation print inched up on higher energy costs.
  • The breadth of inflation pressures narrowed again with the share of the CPI basket growing above 5% going down to 22.3% in March, from 26.0% in the prior month.
  • The Bank of Canada’s favored inflation measures, CPI-median, trim, CPIX, and ‘supercore’ all edged lower with annualized 3-month growth in the ‘trim,’ ‘median’, and CPIX measures all below the BoC’s 2% inflation target in March.
  • Latest Business Outlook Survey showed firms’ expected wage growth was unchanged (4.1%) from the last quarter, but it’s still much lower than the peak level (5.84%) in Q1/22.
  • Businesses’ expected input and output price increases are back to pre-pandemic average levels.

  • Year-over-year CPI ticked lower on lower food prices and a larger-than-expected cooling in price growth excluding food and energy products.
  • The breadth of inflationary pressure continued to narrow, with the share of CPI basket growing at more than 3% edging lower to 47.8%.
  • Growth in the BoC’s closely watched core measures slowed sharply and CPIX was unchanged over the last three months in February.
  • Most of the price growth was still driven by shelter inflation, but mortgage interest costs have been trending lower.
  • Canadian businesses on average continue to plan for smaller price increases in the year ahead.

  • Year-over-year CPI growth slowed to 3.2% in January from 3.4% in December.
  • Energy and food price growth slowed, but the Bank of Canada’s preferred core measures of broader price pressure also unexpectedly slowed.
  • Mortgage interest cost growth is slowing but still driving a disproportionate share of CPI growth. Home rent growth is still accelerating.
  • But other components of shelter inflation, such as homeowners’ replacement costs, saw improvements on lower house prices.
  • Wage growth still elevated along with a strong start to the year for labour markets.

  • Energy component pushed headline inflation reading higher with food price growth holding steady after slowing for 5 straight months.
  • The BoC’s preferred core CPI measures bounced higher, although the breadth of inflationary pressures over the last three months continued to narrow.
  • Travel tour prices declined sharply in December, reversed the jump the prior month.
  • The latest Business Outlook Survey revealed more firms perceived normal/less price increases due to weaker demand
  • And on the consumer side, Canadians’ expectations on rent price growth remained elevated

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