Inflation data coming with big implications for Bank of Canada. What to expect

globalnews.ca:

The Bank of Canada will be scrutinizing May inflation figures this week as it gauges whether it can deliver back-to-back interest rate cuts.

Statistics Canada is set to release the annual inflation rate for May on Tuesday.

Inflation has consistently shown signs of cooling this year, last coming in at 2.7 per cent in April.

Those easing price pressures have allowed the Bank of Canada to make a major shift in monetary policy, cutting its benchmark interest rate by a quarter of a percentage point earlier this month. The central bank uses its key interest rate to set the cost of borrowing broadly in Canada, easing or tightening the policy rate in an effort to restore inflation to its two per cent target.

Some economists expect the May figures will continue to show progress on the inflation front.

Economists Nathan Janzen and Abbey Xu at RBC said in a note Friday that they expect inflation to cool further to 2.6 per cent in June.

Lower gasoline prices globally helped deliver some relief to Canadians at the pump last month, they said, and food inflation at the grocery store also likely eased further.

BMO chief economist Doug Porter said in a note that he also expects inflation slipped 0.1 percentage points last month, which would bring annual inflation to the lowest point since March 2021.

He added that he expects the Bank of Canada’s preferred measures of so-called “core” inflation to continue to hold below the three per cent mark in May.

While Porter said the May inflation figures could well decide whether the Bank of Canada moves forward with a second consecutive rate cut at its next meeting on July 24, the central bank so far seems to be “leaning” in that direction.

Deliberations from the Bank of Canada’s June 5 rate