More focus on May inflation numbers on Tuesday morning as July interest rate announcement approaches

Falling gasoline prices likely drove Canada’s annual rate of inflation lower in May, most economists believe, and that could be enough for the Bank of Canada to keep cutting interest rates.

 

Statistics Canada is set to announce May inflation numbers Tuesday morning, and a consensus of economists surveyed by Bloomberg say the annual rate of inflation — as measured by the Consumer Price Index — likely dropped to 2.6 per cent, down from 2.7 per cent in April.

 

“The May CPI on Tuesday looms large and may well decide whether the BoC follows through with a rate cut in July,” BMO chief economist Douglas Porter said in a research note before the data was released. “The Bank appears to be leaning to a July cut.”

 

Scotiabank economist Derek Holt agreed that the Bank likely already has a July cut pencilled in, assuming nothing unexpected happens with Tuesday’s inflation release or June CPI data being released July 16.

“Barring back-to-back upside surprises … they are likely to continue easing,” said Holt.

 

The next rate announcement is scheduled for July 24.

 

In mid-June, the Bank of Canada dropped its key overnight lending rate to 4.75 per cent from five per cent, citing falling inflation over the previous four months.

 

Inflation peaked at 8.1 per cent in June 2022, as the Canadian economy opened back up from COVID-related restrictions.

 

The Bank raised rates 10 times between March 2022 and last summer in a bid to wrestle inflation down to its two per cent target.

 

The theory is that by making it more expensive to borrow money, consumers and businesses will spend less, driving down prices and slowing the economy.

 

 

 

This article was first reportred by The Star