Canada's latest inflation figures have surprised economists yet again, showing a second consecutive month of softer-than-expected growth. This unexpected slowdown suggests that the Bank of Canada might soon have the opportunity to lower interest rates.
According to Statistics Canada's recent consumer price index report, the annual inflation rate dropped to 2.8 percent. This decline was driven by significant reductions in cellular and internet service prices, along with slower increases in grocery prices.
Economists had anticipated that inflation would rise above January's 2.9 percent rate, partly due to higher gasoline prices. However, the actual figures paint a different picture.
Katherine Judge, a director and senior economist at CIBC Capital Markets, described the report as "unambiguously good" for the Bank of Canada. It indicates that high interest rates are effectively curbing inflation, aligning with the central bank's goals.
Wireless service prices plummeted by 26.5 percent, while internet prices fell by 13.2 percent compared to a year ago. Additionally, the growth in grocery prices slowed down, rising by only 2.4 percent year-over-year.
Globally, high interest rates and the post-pandemic recovery from supply chain disruptions have contributed to lower inflation rates. In Canada, inflation has significantly decreased from its peak of 8.1 percent.
However, consumers are still grappling with elevated prices, particularly for groceries. Statistics Canada reports a steep 21.6 percent increase in grocery prices since February 2021.
Housing costs remain a significant factor in driving inflation upwards, with mortgage interest costs rising by 26.3 percent annually and rent by 8.2 percent.
Despite these challenges, the recent report is positive news for the Bank of Canada. It signals that inflation is moving closer to the country's two percent target, which is crucial for considering interest rate adjustments.
The core measures of inflation, which exclude volatile price fluctuations, also decreased last month. This indicates a more stable underlying demand, further supporting the case for potential interest rate cuts.
However, the Bank of Canada is cautious and wants to see sustained evidence of inflation heading back to its target range before making any moves. Governor Tiff Macklem emphasized the need to proceed cautiously, considering the progress made in combating high inflation.
Economists anticipate that the Bank of Canada may start lowering interest rates around mid-year, possibly in June or July. This shift in monetary policy reflects the recent slowdown in the Canadian economy and the continued progress in managing inflation.
The Bank of Canada's next interest rate announcement is scheduled for April 10, where further insights into its monetary policy decisions will be revealed.
Commentaires