Canada’s inflation rate for January eased to 2.9%, a drop beyond economists’ expectations, potentially paving the way for the Bank of Canada (BoC) to consider rate cuts as soon as June. Economists have analyzed the latest figures and shared their insights.
According to Olivia Cross, a North America analyst at Capital Economics, the BoC will be pleased to see improvements in its measures of core inflation. Core inflation, excluding food and energy, only increased by 0.1% month-over-month, a deceleration from December’s 0.3% gain. The BoC’s preferred measures, CPI-trim and CPI-median, both slowed to 3.4% and 3.3%, respectively.
However, Cross advises caution, emphasizing the BoC will be monitoring whether this deceleration will continue before considering rate cuts. Capital anticipates the first rate cut to occur at the central bank’s June 5 meeting, according to the Financial Post.
Andrew Grantham from CIBC Economics observes that elevated interest rates are affecting consumer spending, as evidenced by significant declines in airline fares and clothing prices. Grantham notes a potential rebound in inflation but predicts a first-quarter rate of 2.9%, below the BoC’s forecast.
“So even with GDP growth running somewhat stronger than they expected, we still anticipate that interest rate cuts will start in June,” Grantham said.
Abby Xu of RBC Economics highlights a decrease in inflation acceleration and expects shelter inflation to persist due to higher mortgage rates and housing shortages. This persistent inflation presents challenges for the BoC’s 2% target. Likewise, Xu anticipates the BoC to start lowering interest rates by mid-year.
National Bank of Canada economists Matthieu Arseneau and Alexandra Ducharme attribute the 6.2% annual surge in shelter costs to elevated mortgage interest rates and rising rental prices driven by population growth. They anticipate continued pressure on the economy and labor market due to restrictive monetary policies, maintaining their forecast for a first interest rate cut in June while acknowledging increased prospects for an April adjustment following the latest report.
Charles St-Arnaud of Alberta Central believes it’s premature to declare victory against inflation, emphasizing the importance of core inflation remaining below 3% for sustained periods before considering rate cuts. “We continue to believe that the BoC is unlikely to contemplate rate cuts until inflation has been brought sustainably below three per cent,” he said. “With this in mind, a cut in June looks like the most probable timing.”
Overall, while the January inflation figures provide some relief, economists remain cautious, noting the importance of sustained trends and core inflation metrics.
Source CMP
By Jonalyn Cueto