(Ottawa) The inflation rate is expected to have fallen in the country last month, according to economists who predict that the Bank of Canada will take advantage of this to reduce its key rate throughout the fall.
Statistics Canada is expected to release its July Consumer Price Index report on Tuesday. Experts expect inflation to have fallen three-tenths of a percentage point, from 2.7 to 2.4 per cent.
James Orlando, managing director and chief economist at TD Bank, said he expects the annual rate to decline despite the upward trend in gasoline and food prices. He noted that the CPI is calculated based on prices from a year ago.
The slowdown in price growth in 2024 has strengthened the confidence of economists and the Bank of Canada about inflation in the coming months. This could convince the central bank to reduce its key rate.
“The results will really have to be very different from what we are seeing to refuse to reduce the key rate in September,” underlines Tiago Figueiredo, macro strategist at Desjardins.
He says his company expects the inflation rate to fall to 2.5% in July.
The Bank of Canada, which cut its key rate in July, has signaled that it will continue to do so as long as price growth is restrained.
The central bank’s reversal comes as consumers and businesses have cut back on spending, sending the economy sputtering. At the same time, a slight shiver of fear has shaken the jobs market, with the unemployment rate rising to 6.4% in July.
Bank of Canada Governor Tiff Macklem said in July that as inflation moved closer to the 2% target, the risks associated with maintaining high interest rates were becoming more significant for the central bank.
PHOTO JUSTIN TANG, CANADIAN PRESS ARCHIVES
Bank of Canada Governor Tiff Macklem
“This need for a resumption of growth is part of our decision to reduce the key interest rate today,” he said.
Experts now expect the central bank to cut its key rate at every meeting of its board through the end of the year. Assuming the Bank of Canada does so at a quarter-point pace, the rate would then rise to 3.75%.
“There’s really not much to suggest that inflation is going to continue to rise. That reinforces our expectation that we’ll see quarter-point cuts at every board meeting,” Orlando predicted.
The inflation rate has remained within the Bank of Canada’s target of 1 to 3% since January, a welcome development after the sharp rise in prices.
The Bank of Canada’s monetary policy report released in July includes new forecasts, which suggest that inflation will return to the 2% target next year.
Slowing inflation is not just happening in Canada.
In the United States, the annual rate reached 2.9%, its lowest level in three years in July. The American Federal Reserve should reduce its key rate in September.
The European Central Bank and the Bank of England also cut their key interest rates in July.
The Bank of Canada’s next interest rate decision is scheduled for September 4.