'Seals the deal:' Inflation data points to another interest rate cut, economists say

financialpost.com:

June’s consumer price index inflation data should be a welcome sign for Canadians hoping for an interest rate cut next week, according to some of the country’s top economists.

Statistics Canada on Tuesday said inflation slowed to 2.7 per cent last month, a noticeable bounceback from the surprise 2.9 per cent increase in May.

The dip was largely due to a slowdown in gas prices, which climbed 0.4 per cent year over over compared to 5.6 per cent in May. Shelter prices also dropped during the month.

After the scare in May, economists believe the Bank of Canada now has the green light to make another interest rate cut next week.

Here’s what they had to say:

Stephen Brown, deputy chief North America economist at Capital Economics Ltd., said some core measures finished above target, but the Bank of Canada’s Business Outlook Survey, which pointed to further disinflationary pressure to come, makes it more likely Canadians will see a cut next week.

“We can’t completely rule out a pause from the (Bank of Canada) next week,” he said in a note.

“Our sense, however, is that the (central) bank is likely to be growing more concerned about the downside risks of its still tight policy stance. The unemployment rate jumped to 6.4 per cent in June and the Business Outlook Survey suggests that wage pressures have eased considerably, all of which should give the bank confidence that core inflation will continue to fall.”

Claire Fan, an economist at Royal Bank of Canada, agrees the Business Outlook Survey results should lead the Bank of Canada to an interest rate cut, even though the latest inflation figures may be slightly high.

“Yesterday’s second-quarter release of the (Bank of Canada)’s Business Outlook Survey largely confirmed further