Bank of Canada Awaits Crucial Inflation Data

The Bank of Canada is set to receive crucial inflation data this week, which will significantly influence its upcoming interest rate decision. Economists are anticipating a return to cooling inflation, which could bolster hopes for another rate cut.

Statistics Canada is scheduled to release the Consumer Price Index (CPI) figures for June on Tuesday. This data will be closely monitored by the Bank of Canada, especially following a surprising uptick in inflation the previous month.

In May, inflation accelerated to an annual rate of 2.9%, catching most economists off guard as they had expected the cooling trend of early 2024 to continue. This unexpected rise occurred shortly after the Bank of Canada reduced its benchmark interest rate by a quarter percentage point—the first such cut in over four years.

Tiff Macklem, Governor of the Bank of Canada, indicated that Canadians could anticipate more interest rate cuts provided that inflation aligns with the central bank’s forecasts. The recent data will be critical in determining whether the Bank will continue with this dovish monetary policy approach.

Avery Shenfeld, Chief Economist at CIBC, expressed optimism that May’s inflation surge was an anomaly rather than the beginning of a sustained increase in price pressures.

“We’re hoping that May’s significant increase was a bit of a one-off,” Shenfeld told Global News. “The economy does seem to be cooling. There are more workers out there looking for jobs. That tends to promote slower inflation, and that’s what we expect to see in June.”

Similarly, economists at the Royal Bank of Canada (RBC) are predicting a return to easing inflation. Nathan Janzen and Abbey Xu of RBC forecast that annual inflation will slow to 2.7% for June, citing a reduction in energy price hikes and further cooling in grocery store prices as key factors.

The upcoming CPI figures will play a pivotal role in the Bank of Canada’s next interest rate decision. If the data confirms a return to cooling inflation, it may pave the way for another rate cut, providing relief to borrowers and potentially stimulating economic activity.

As the Bank of Canada prepares for its next interest rate decision, all eyes are on the forthcoming inflation data. With economists expecting a return to cooling price pressures, the central bank could continue its trend of interest rate cuts, aiming to sustain economic stability and growth.