Fresh inflation data points to June rate cut, leading economists say

After Statistics Canada reported Tuesday morning that Canada’s annual core inflation rate fell for a fourth straight month in April, economists say all signs point to the Bank of Canada entering a rate-cutting cycle this summer.

The headline consumer price index rose 2.7% from a year earlier, in line with expectations, and down from the 2.9% reported last month. This is the fourth month in a row that the rate has been within the central bank’s target range.

This is what the consumer price index data suggests, according to leading Canadian economists.

“These are very good numbers for Canadians and the Bank of Canada,” Sal Guatieri, director and senior economist at BMO Capital Markets, said in an interview with Bloomberg on Tuesday.

“We saw a decline in the headline rate as well as two key inflation indicators that the Bank of Canada watches quite closely. Now they are less than three percent, and this is very important,” he explained.

Guatieri added that other than upward pressure on mortgage interest and rent cost inflation, “there’s really not a lot of inflation right now.”

“The consumer price index excluding housing (rents and mortgage interest) rose just 1.2 percent last year,” the BMO economist said.

He noted that these data pave the way for the Bank of Canada to begin cutting interest rates, but a June cut is not yet guaranteed.

Abby Xu, an economist at RBC, said April inflation figures were in line with economic expectations, with “key details” pointing to a further decline in inflation pressures.

In a report from RBC on Tuesday, he said the Bank of Canada is “as concerned about where inflation will go in the future as it is where it is now, but the persistently softer economic backdrop in Canada (declining GDP per capita and rising unemployment rates) is increasing the likelihood that price growth will continue to slow.”

Abby Xu added that “the case for interest rate cuts from the Bank of Canada continues to grow, and today’s report is in line with our own base case for the first cut in June.”