By Robb M. Stewart
OTTAWA--Canadian inflation returned to a downward path in June despite some lingering price pressures on consumers, leaving the door open for the central bank to follow up with another cut to interest rates this month.
The consumer-price index, a measure of goods and services prices across the economy, fell 0.1% from May, cooling year-over-year price increases to 2.7%, the same pace as in April before a surprise acceleration the following month.
Core prices excluding volatile food and energy climbed 2.9% annually, matching the pace from the month before, while a pair of key indicators of underlying inflation preferred by the central bank eased for a fourth month in the last five.
On the heels of central bank consumer and business surveys this week that point to gloomy expectations for the economy and a continued easing in inflationary pressures, the latest data are likely to heighten expectations the Bank of Canada will offer further rate relief next week after it last month became the first Group of Seven central bank to lower its policy interest rate.
The largest weight on headline inflation in June was a deceleration in gasoline price increases. Canadians also paid less for durable goods last month, driven by the largest yearly decline for passenger vehicles since February 2015. Prices fell for furniture as supply-chain issues faded and with still-high interest rates weighing on decisions to buy big-ticket discretionary items.
The Bank of Canada, which in early June cut its benchmark rate one-quarter percentage point to 4.75% after leaving it at a more than a two-decade high for roughly a year, has forecast inflation will continue to ease toward its 2% target. Gov. Tiff Macklem has emphasized that monetary policy decisions will hinge on economic data.
Annual inflation has been inside the 1%-3% window the central bank aims at for six consecutive months, even after advancing to 2.9% in May, and the labor market has continued to show signs of softening as modest hiring has been outpaced by an immigration-fueled expansion of the labor force, pushing the unemployment rate up.
Two measures of underlying inflation the central bank closely monitors cooled modestly in June after ticking up in May. Weighted median and trimmed mean CPI rose an average 2.75% last month from a year earlier, compared with 2.80% growth the month before.
Headline inflation in Canada has been easing steadily after peaking at just over 8% in mid-2022, forcing the Bank of Canada to embark on an aggressive rate-raising campaign.
Mortgage interest costs and rent remain the biggest contributors to year-over-year inflation, and grocery prices remain elevated. For a second straight month, consumers paid more for food bought at stores in June.
In the U.S., June inflation eased substantially to 3% annually, the lowest in a year and helping set the stage for the Federal Reserve to begin cutting interest rates by the end of the summer.
Write to Robb M. Stewart at robb.stewart@wsj.com
(END) Dow Jones Newswires
07-16-24 0854ET
