June 14th, 2024

Canada’s inflation rate falls to 2.7% in April, driving up odds of June rate cut

By Nojoud Al Mallees, The Canadian Press on May 21, 2024.

Statistics Canada is set to release its April consumer price index report this morning. Shoppers browse product outside a shop, in Toronto, Wednesday, Jan. 27, 2021. THE CANADIAN PRESS/Frank Gunn

OTTAWA – Canada’s annual inflation rate fell to 2.7 per cent in April amid a broad-based slowdown in price growth, boosting expectations of an interest rate cut next month.

Statistics Canada said the slowdown from 2.9 per cent in March was led by food prices, services and durable goods.

Tuesday’s consumer price index report bears good news for the Bank of Canada, which has been looking for a sustained decline in inflation toward its two per cent target.

And for economists who have been expecting the central bank to deliver the first rate cut in June, the latest data has made them more confident in their call.

Financial markets have also upped the odds of a rate cut next month.

“Today’s data should have provided the all clear on the inflation front that the Bank of Canada needed to start cutting interest rates in June,” wrote Andrew Grantham, CIBC’s executive director of economics, in a client note.

Grocery prices grew at a modest pace, rising 1.4 per cent from a year ago, the data showed.

Meanwhile, higher gasoline prices moderated the deceleration in inflation last month, with pump prices rising 6.1 per cent year-over-year.

Excluding gasoline, prices were up 2.5 per cent from a year ago.

The Bank of Canada’s core measures of inflation, which strip out volatile prices, also slowed last month and are all now below three per cent.

The central bank has signalled that it is inching closer to cutting interest rates but wants to see the slowdown in inflation sustained for longer.

Prior to Tuesday’s release, economists were split on whether the Bank of Canada could move to cut rates in June or July.

TD says it still thinks the central bank will wait until July to cut, noting the annual inflation rate is still to close to the upper bound of the Bank of Canada’s one to three per cent inflation target range.

“But June or July, Canadians can be increasingly confident that alongside lower inflation, interest rates are headed lower soon,” wrote Leslie Preston, a managing director and senior economist at TD.

The Bank of Canada’s key interest rate currently sits at five per cent, the highest it’s been since 2001.

This report by The Canadian Press was first published May 21, 2024.

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