Inflation data coming amid rate cut bets. Here’s what to know
Many economists are expecting that July inflation data coming this week won’t dissuade the Bank of Canada from another interest rate cut at its next decision in September.
Tuesday’s release of July consumer price index figures from Statistics Canada will be the central bank’s last look at the latest inflation trends before its upcoming rate decision slated for Sept. 4.
Royal Bank of Canada economists Nathan Janzen and Claire Fan said in a note Friday that “the easing of Canadian inflation pressures has slowed in recent months.” June data showed the annual rate of inflation cooled to 2.7 per cent.
RBC is expecting that inflation held steady at those levels for July.
Bank of Montreal, on the other hand, is calling for the annual rate to drop to 2.6 per cent month, despite expectations that rising gas and travel costs added to inflationary pressures in July.
Benjamin Reitzes, director of Canadian rates and macro strategist at BMO, said in a note Monday that headline inflation should continue to ease largely because of base-year effects, which refer to the impact on inflation from movements this time last year in the CPI basket.
Travel has proven to be thorny in inflation calculations during the summer, says Stephen Brown, Capital Economics’ deputy chief North America economist.
He told Global News earlier this month that while seasonal adjustments usually account for an uptick in travel prices in the summer months, the flood of demand for vacations and air travel since the pandemic has led to an outsized impact on inflation.
“We’ve had more of a seasonal spike than normal and that’s not being corrected for. So there is a bit of an upside risk to inflation compared to the Bank’s expectations in July specifically,” he said.
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