Canada Economic Update June 2024
After a surprising increase in May, inflation trends in Canada resumed their downward trajectory in June, with the headline Consumer Price Index (CPI) dropping to 2.7% from 2.9%. This decline is largely attributed to easing energy prices, although food prices have continued to rise. Here’s a detailed look at the factors influencing these changes and what they mean for the Bank of Canada’s upcoming decisions.
Key Highlights
Headline CPI Decline: June's headline CPI dropped to 2.7%, down from 2.9% in May. This decrease was primarily driven by a slowdown in energy CPI growth, which fell to 0.5% year-over-year, aided by a 3% month-over-month drop in gasoline prices.
Energy vs. Food Inflation: While energy prices eased, food inflation saw an uptick, rising to 2.8% in June from 2.4% in May. This marks the second consecutive month of accelerated food price growth, with a monthly seasonally adjusted increase of 0.6% in both May and June, a significant rise from the -0.03% average rate between January and April this year.
Core CPI Stability: Excluding food and energy, the core CPI held steady at 2.9% year-over-year from May. Other core CPI measures closely monitored by the Bank of Canada, including CPI trim and CPI median, rose at a slower 0.2% (seasonally adjusted) in June. The yearly readings for CPI trim remained unchanged at 2.9%, while CPI median slightly decreased to 2.6%.
Supercore CPI Trends: The supercore CPI measure, which excludes shelter services, rose by 0.3% in June on a seasonally adjusted basis, mirroring the increase in May. This pushed the three-month annualized reading to 3.4% in June, up from 3% in May. Despite this, the broader trend suggests easing inflation pressures in Canada.
Goods Inflation and Supply Chain Effects
Persistent improvements in global supply chains and reduced demand over the past years continue to lower goods inflation in Canada. In June, prices for durable goods were 1.8% lower than the previous year, driven by significant drops in prices for used cars (-4.5%) and furniture (-3.9%).
Bank of Canada’s Next Steps
June’s CPI data, aligning with consensus expectations, offers some relief following May’s upside surprise. The Bank of Canada’s preferred CPI measures, CPI trim and CPI median, both showed monthly declines, although the narrower supercore measure remained slightly elevated.
The recently released second-quarter Business Outlook Survey from the Bank of Canada supports the view of easing inflation pressures. The survey indicated further normalization in key areas such as firms' pricing behavior, future inflation expectations, and wage growth.
Conclusion
The overall picture suggests that inflation pressures are easing, giving the Bank of Canada a solid basis to consider further easing of monetary policy. With inflation data providing a clearer justification, it is widely anticipated that the Bank will implement another rate cut at its upcoming meeting on July 24th.
Stay tuned for more updates and insights as we continue to monitor the economic landscape in Canada.
Key dates for the Bank of Canada's meetings:
➝ July 24th, 2024
➝ September 4th, 2024
➝ October 23rd, 2024
➝ December 11th, 2024
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