Canadian CPI cements a Bank of Canada rate cut next week – CIBC

The Bank of Canada meets on July 24 and economists are increasingly sure of a rate cut. That’s also reflected in interest rate derivatives which are now showing a 93% probability of a cut.

CPI decelerated to 2.7% from 2.9% with core numbers also slowing. The numbers show that the prior month’s upside surprise in inflation was just a blip in a broader trend of disinflation as demand in
the economy remains under pressure, according to CIBC.

They note that a big disinflationary tailwind is coming via housing and that rent slowed to +0.4% m/m and edged lower to 8.8% y/y.

“As population growth slows with the government restrictions tied to
NPRs, and more people move into the homeownership market as interest rates fall, rents should continue to
decelerate. Soon, the combination of fading MIC and a further gradual slowdown in rent will mean shelter will start to
add material downward pressure on inflation,” CIBC economists write.

“On the surface, the demand-driven part of inflation appears to fading with only a few idiosyncratic pockets keeping
inflation above target. In our view, the Bank of Canada can be comfortable gradually moving away from it’s meeting-
by-meeting and data-dependent strategy, and operate on something close to auto-pilot by trusting its forecasts which
have been much more accurate over the past year. The economy is clearly in need of interest rate relief to ensure a
soft landing with future headwinds such as large mortgage renewals and population growth that could cater. With
headline inflation back within the target zone and the BOS survey showing firm’s inflation expectations are edging
down, any worries of upside risks to inflation or inflation being stuck above target is missing the mark.”

This article was written by Adam Button at www.forexlive.com.