Canada's inflation rate eases more than expected in June to 2.7 ...

10:45 a.m.What’s next?

The Bank of Canada’s rate decision on July 24 is the next big day on the economic calendar. Between now and then, there are some noteworthy economic reports – for example, retail sales – but nothing significant enough to upend anyone’s predictions for next week.

As it stands, investors are leaning heavily toward another rate cut, which would take the benchmark lending rate to 4.5 per cent. Two or three rate cuts are expected this year, on top of the cut delivered last month.

Alongside the rate decision, the central bank will also publish its quarterly Monetary Policy Report, which includes projections for economic growth, inflation and other metrics. In the previous MPR, the bank forecast that inflation would return to its 2-per-cent target next year.

– Matt Lundy

10:34 a.m.Inflation moderates - but mostly in the spending categories Canadians can do withoutOpen this photo in gallery:

The June inflation numbers are a tale of two kinds of shopping for Canadian consumers.

On the one hand, there’s spending on items such as furniture and vehicles. The good news here is that the prices of many of those expensive, discretionary goods are falling.

Home furnishing stores are one place where you’ll find respite from inflation, with prices there down 3.9 per cent compared with a year ago. Used car lots are another destination for likely discounts, with prices down 4.5 per cent compared to last year.

Easing supply chain issues and higher inventories are contributing to the softer price tags in those two categories, according to Statistics Canada. And higher interest rates are also likely turning consumers away from these big-ticket purchases, making it a lot less appealing, for example, to get a car loan or pay in instalments for a new sofa.

If you need a new computer, you’re also in luck. The prices of digital equipment and devices were down by 9.3 per cent in June compared with a year earlier.

The trouble is, stronger price growth is lingering in many of the categories Canadians can’t cut out of their spending list. Grocery inflation ticked up to 2.1 per cent year-over-year, bouncing back from 1.5 per cent in May and 1.4 per cent in June. And that’s a time when more fresh produce grown in Canada starts to hit the supermarket shelves, which typically helps moderate prices for fruit and vegetables.

And the cost of shelter continues to march upward for both tenants and homeowners. Rents were up 8.8 per cent year-over-year, and mortgage interest costs were 22.3 per cent above where they stood in June of 2023, as more people renewed their loans at sharply higher rates. Meanwhile, the cost of home and car insurance is also climbing higher, the data shows.

The glaring exception last month was gasoline prices, which dropped by 3.1 per cent compared with May.

But that’s small consolation for consumers, especially those who have little spare room in their budgets.

– Erica Alini

10:25 a.m.U.S. rate cuts coming soon?Open this photo in gallery:

The Federal Reserve is close to cutting interest rates – and that takes some pressure off the Bank of Canada.

Expectations for the U.S. central bank have shifted wildly in recent months. Consider that in January, investors were expecting six rate cuts from the Fed in 2024, with the first delivered in March. That’s not panned out.

The U.S. economy has proven quite strong and inflation tough to tame, despite the dampening forces of higher interest rates. As a result, the Fed has held its key interest rate steady at a range of 5.25 per cent to 5.5 per cent.

But once again, the narrative is shifting. Last week, the U.S. reported inflation figures that were cooler than expected. Economic growth is slowing, as is the pace of hiring. In testimony to Congress, Fed chair Jerome Powell warned about the dangers of keeping rates high for too long.

As of Monday, traders were pricing in a 100-per-cent chance that the Fed will start to cut interest rates in September, according to Bloomberg data. A week earlier, those odds were roughly 70 per cent. (The next Fed decision is on July 31, though no moves are expected then.) In recent weeks, many investors and economists were pencilling in rate cuts to begin in November.

A quicker timeline for U.S. rate cuts is likely good news for the Bank of Canada, which started its process of monetary policy easing last month. This has raised questions about how far Canadian rates can diverge from those of the U.S.

This gap in lending rates puts downward pressure on the value of the Canadian dollar, relative to the American currency. While this is helpful for exporters, it also makes imported goods more expensive.

Bank of Canada Governor Tiff Macklem has said the country is not close to reaching its limit on rate divergence.

“We don’t need to move in lockstep with the Federal Reserve,” Mr. Macklem explained last month. “There are limits to how far we can diverge from the United States, but we’re not close to those limits.”

– Matt Lundy

10:15 a.m.June inflation numbers put second BoC cut squarely on the tableOpen this photo in gallery:

Bank of Canada interest rate decisions are never a sure thing. But the June inflation data puts another rate cut squarely on the table for the July 24 decision.

After a surprising uptick in May, inflation is back on a downward path and well within the central bank’s control range. And with other economic indicators coming in weak, there’s a strong case for Canada’s central bankers to continue lowering borrowing costs next Wednesday.

In June, the Bank of Canada became the first G7 central bank to ease monetary policy, cutting its benchmark interest rate to 4.75 per cent from 5 per cent. Bank of Canada Governor Tiff Macklem said at the time that more moves would likely be appropriate, although he remained tight-lipped about timing.

As it stands, interest rates remain highly restrictive. That’s showing up in sluggish economic growth and rising unemployment, which hit 6.4 per cent in June.

The central bank’s quarterly consumer and business surveys, published Monday, captured the gloomy mood. Most companies said they expected weak sales and reported little interest in investing in machinery and equipment or hiring more workers. Consumers reported cutting back on spending.

The surveys also showed a decline in expectations about inflation, easing wage pressures and a further normalization in business price-setting behaviour.

Tepid economic growth would not, by itself, be enough to convince the central bank to cut interest rates if inflation was still a major concern. But the June inflation data suggests things are generally moving in the right direction.

The bank’s preferred measures of core inflation, which strip out the most volatile prices, were somewhat mixed. On an annual basis CPI-median was up 2.6 per cent, lower than 2.7 per cent in May. CPI-Trim remained steady at 2.9 per cent.

The core measures did accelerate on a three-month-annualized basis. However, “they tend to be volatile and won’t be enough to scare central bankers off cutting rates on July 24th,” Royce Mendes, head of macro strategy at Desjardins, wrote in a note to clients.

At the last rate announcement on June 5, Mr. Macklem said that “if inflation continues to ease, and our confidence that inflation is headed sustainably to the 2 per cent target continues to increase, it is reasonable to expect further cuts to our policy interest rate.”

It’s hard not to think that these conditions have been met.

– Mark Rendell

10:07 a.m.Here’s how economists are reacting to today’s inflation reportRoyce Mendes, managing director and head of macro strategy, Desjardins Securities

After the prior month’s detour, inflation was back on a track towards the Bank of Canada’s 2 per cent target in June. ... The inflation reading for Q2 of 2.7 per cent is notably below the Bank of Canada’s forecast of 2.9 per cent for the period.

Core measures of inflation looked significantly tamer in June relative to May. … A return to tepid consumer price growth likely seals the deal for a follow-up 25bp [basis points] rate cut from the Bank of Canada next week. Along with significant declines in inflation expectations and a further normalization in corporate pricing behaviour, the latest inflation data build a strong case for continuing the rate cutting cycle without delay. That’s particularly true in light of the subdued survey responses from consumers and businesses about the outlook for the Canadian economy.

Stephen Brown, deputy chief North America economist, Capital Economics

The Bank of Canada’s preferred CPI-trim and CPI-median measures of core prices rose at an above-target monthly pace for the second month running in June. Nonetheless, with the Bank’s Business Outlook Survey, released yesterday, pointing to much more disinflationary pressure in the pipeline, we still think the odds favour another interest rate cut next week.

CPI-trim and CPI-median each rose by 0.24 per cent [month over month], above the rate of 0.17 per cent that would be consistent with 2 per cent inflation, but smaller than the average gain of 0.33 per cent in May. The bank can also take some encouragement from trends in the other key price indices, with CPIX – which excludes eight of the most volatile components – rising by just 0.1 per cent and headline prices also rising by just 0.1 per cent ...

As the closely watched three-month annualized change in CPI-trim and CPI-median picked up further to 2.9 per cent in June, we can’t completely rule out a pause from the bank next week. Our sense, however, is that the 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.

James Orlando, director and senior economist, TD Economics

Today’s CPI report was a bit of a mixed bag. While headline inflation got back on track in June, the three-month annualized pace of core inflation has now been rising for three straight months. This infers that the annual pace of inflation should remain in the upper end of the BoC’s 1 per cent to 3 per cent range over the coming months. This has been propelled, not just by shelter prices, but also by price gains in “nice-to-haves” like the cost of dining out, health spending, and household operations.

The BoC is set to make a rate announcement next week and today’s report has increased odds of back-to-back rate cuts. Recent data have supported a cut, with the job market loosening and wage gains decelerating from elevated levels. From our view, the story hasn’t changed. The BoC is in a cutting cycle. Whether or not it follows through with a slightly quicker pace of cuts next week, Canadians should expect rates to be steadily reduced over the rest of this year and next.

Read the full roundup of economist and market reaction.

– Darcy Keith

9:47 a.mHere’s a list of June inflation rates for selected Canadian cities

Statistics Canada also released rates for major cities, but cautioned that figures may have fluctuated widely because they are based on small statistical samples (previous month in brackets):

St. John’s, N.L.: 2.8 per cent (3.2)Charlottetown-Summerside: 3.7 per cent (3.4)Halifax: 3.6 per cent (3.8)Saint John, N.B.: 2.6 per cent (2.7)Quebec City: 2.2 per cent (3.0)Montreal: 2.5 per cent (3.2)Ottawa: 2.7 per cent (2.7)Toronto: 3.4 per cent (3.4)Thunder Bay, Ont.: 1.6 per cent (2.2)Winnipeg: 1.5 per cent (1.4)Regina: 1.4 per cent (1.5)Saskatoon: 1.9 per cent (1.5)Edmonton: 2.7 per cent (2.8)Calgary: 3.6 per cent (3.6)Vancouver: 2.3 per cent (3.1)Victoria: 2.9 per cent (2.9)Whitehorse: 1.9 per cent (2.3)Yellowknife: 1.8 per cent (2.6)Iqaluit: 1.0 per cent (0.6)

– The Canadian Press

9:35 a.mInflation highlights: Consumers see grocery prices rise, clothing prices fallOpen this photo in gallery:

Here are some highlights from Tuesday’s report.

Core measures of inflation – which strip out volatile movements in the CPI – resumed their moderation. The Bank of Canada’s preferred core measures rose at an average annual rate of 2.75 per cent in June, easing from 2.8 per cent in May.The short-term trend for inflation is also favourable. On a three-month annualized basis, the CPI rose 2 per cent in June, down from 2.8 per cent in May.Grocery price increases are picking up speed again. In June, prices for food purchased from stores rose 2.1 per cent, year-over-year. That was up from 1.5 per cent in May and 1.4 per cent in April. While the June figures are a far cry from the worst increases of the past few years – grocery prices were rising by roughly 11 per cent on an annual basis in late 2022 and early 2023 – it’s still a concerning development for inflation-weary consumers.The clothing industry is one of a handful of places where families can find discounts. Clothing prices have fallen by 2.6 per cent over the past year, while footwear prices have dropped by 5.6 per cent. With consumers spending less on discretionary items, retailers need to cut prices to move product.

– Matt Lundy

9:23 a.mAnalysis: Reality check on today’s inflation data starts at the grocery storeOpen this photo in gallery:

A reality check on today’s encouraging inflation number starts at the doors of any grocery store.

After hitting a multiyear low in April, grocery inflation has picked up for two straight months. The year-over-year June inflation rate for food bought at grocery stores was 2.1 per cent, compared with 1.5 per cent in May and 1.4 per cent in April.

Grocery inflation hit 9.1 per cent in June, 2023, and a staggering 11.4 per cent at the beginning of last year. We have come a long way since those days, but grocery inflation is still a potent force in the economy.

Ask people what’s bugging them most about their finances these days and you’ll hear food prices mentioned consistently. You’ll also hear about products like cereal that people can no longer afford to buy unless they’re deeply discounted.

Food is the unavoidable purchase and, for families, it’s a bulk expense that has grown catastrophically. Statistics Canada says food prices jumped 21.9 per cent from June, 2021, to June, 2024.

The overall inflation rate of 2.7 per cent last month was down from 2.9 per cent in May, which represents welcome progress in containing the rising cost of living. But the persistence of food inflation makes it hard to take much joy in this at the household level. Every trip to the grocery store is a reminder of how the cost of feeding your family has ballooned. It’s the No. 1 reason why people of all backgrounds feel poorer today.

– Rob Carrick

9:10 a.mHere’s a list June inflation rates for Canadian provinces

Canada’s annual inflation rate was 2.7 per cent in June, Statistics Canada says. Here’s what happened in the provinces (previous month in brackets):

Newfoundland and Labrador: 2.3 per cent (2.6)Prince Edward Island: 3.4 per cent (3.2)Nova Scotia: 3.5 per cent (3.7)New Brunswick: 2.8 per cent (2.9)Quebec: 2.2 per cent (3.1)Ontario: 3.0 per cent (3.0)Manitoba: 1.4 per cent (1.3)Saskatchewan: 1.4 per cent (1.5)Alberta: 3.0 per cent (3.0)British Columbia: 2.6 per cent (2.9)

– The Canadian Press

9:05 a.mMarkets raise bets on Bank of Canada July rate cut after today’s inflation report

Money markets have increased their bets that the Bank of Canada will cut interest rates again on July 24 in the wake of this morning’s modestly tamer-than-expected June inflation data.

Implied probabilities of future interest rate moves in swaps markets now suggest an 87 per cent chance of a Bank of Canada quarter-point rate cut at that meeting, up from 83 per cent odds just prior to the 8:30 am ET report, according to data from LSEG. Nearly three more quarter-point cuts are now priced into markets by the end of this year, which would bring the bank’s overnight rate to 4 per cent.

Money markets raise bets for BoC rate cut this month after inflation data

Currency markets also interpreted the data as dovish, with the Canadian dollar dropping about two-10ths of a cent following the data, to 73.00 cents US. Bond market reaction was fairly subtle, with Canada’s two-year bond yield holding close to 3.8 per cent.

Coming into this month, probabilities for an interest rate cut on July 24 were essentially down to a coin flip. But several economic reports since then - most notably a weak June Canadian jobs report - had markets increasingly pricing in a July 24 quarter-point rate cut by the BoC. Several economic reports and dovish Federal Reserve market commentary out of the U.S. in recent days also now have markets confident the Fed will begin cutting rates in September - which has raised confidence levels further that the BoC will soon cut rates a second time.

– Darcy Keith

8:47 a.mThe new inflation numbers

Canada’s inflation rate is back on a downward track, boosting the chances that the Bank of Canada cuts interest rates again next week.

The Consumer Price Index rose 2.7 per cent in June on an annual basis, down from 2.9 per cent in May, Statistics Canada said Tuesday in a report. Financial analysts were expecting the inflation rate to ease to 2.8 per cent.

This is the sixth consecutive month that inflation has fallen within the Bank of Canada’s target range of 1 per cent to 3 per cent. Moreover, it’s the fifth out of six months this year that headline inflation has proven soft, relative to expectations on Bay Street.

On a month-to-month basis, consumer prices fell 0.1 per cent in June, without adjustments for seasonality.

There were several contributors to the weaker reading. For example, gasoline prices fell 3.1 per cent in June from May, while prices for travel tours tumbled by 11.1 per cent.

All eyes are now on the Bank of Canada, which announces its next policy rate decision on July 24. The central bank cut its benchmark interest rate last month for the first time in four years. And while bank officials have indicated that rate cuts could be gradual, investors are overwhelmingly leaning to a repeat performance next week.

– Matt Lundy

8:30 a.mCanada’s inflation rate eased to 2.7% in June: Statscan

Canada’s inflation rate eased by more than expected last month. The Consumer Price Index rose 2.7 per cent in June from a year earlier, down from 2.9 per cent in May. Financial analysts were expecting an inflation rate of 2.8 per cent.

– Matt Lundy

7 a.m.June inflation report to be released todayOpen this photo in gallery:

Will the Bank of Canada cut interest rates again next week? The answer may come Tuesday morning, when Statistics Canada publishes inflation figures for June.

Financial analysts are expecting a slight moderation in Consumer Price Index growth. The median estimate is for the annual inflation rate to ease to 2.8 per cent in June from 2.9 per cent in May. That would mark the sixth consecutive month that inflation has fallen within the central bank’s target range of 1 per cent to 3 per cent.

So far this year, inflation figures have been softer than expected, prompting the Bank of Canada to cut its key interest rate to 4.75 per cent from 5 per cent – the first decline in four years.

However, the May inflation numbers were surprisingly strong, casting some doubt over whether the bank will cut again on July 24 or wait until Sept. 4.

Bank of Canada Governor Tiff Macklem has stressed that rate reductions could be gradual, with monetary policy decisions hinging on economic data.

On various fronts, the data are weak, counteracting the flare-up in consumer prices in May. For example, hiring stalled in June and the unemployment rate rose to 6.4 per cent – the highest level since October, 2017, not including the first two years of the pandemic.

Heading into Tuesday’s CPI report, investors are leaning heavily toward a July cut. Traders are indicating there’s an 83-per-cent chance that the BoC trims its policy rate by a quarter-point next week, according to Bloomberg data.

“If we’re judging the ‘quality’ of these inflation reports based on month-to-month movements in the broad array of core CPI measures, then the May report was the first bad one after four good ones in a row from January through April,” Bank of Montreal senior economist Robert Kavcic said in a client note. (Measures of core inflation aim to give a better sense of underlying inflation by removing products and services with volatile price swings.)

“So, a favourable June print would leave the running tally at five-of-six on the good side, which could very well justify further rate cuts,” Mr. Kavcic continued. “But, a second bad print would become less of an anomaly and more of a concerning trend, arguing for some caution.”

– Matt Lundy