Economists predict multiple BoC rate cuts on inflation data

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Statistics Canada’s July consumer price index showed a significant cooling in inflation, with the rate easing to 2.5 per cent — its slowest pace since March of 2021.

Economists believe this latest reading cements a 25-basis point cut by the Bank of Canada in September, and they predict further rate cuts before year’s end.

Here’s what they had to say:

‘Enough to quell concerns about sticky inflation:’ RBC

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Claire Fan, an economist at Royal Bank of Canada, says the latest inflation reading is good news for the Bank of Canada, which can turn its focus to a weakening economic backdrop.

“Readings were unequivocally weak — with slowing evident among all core CPI measures,” she said in a note. “The scope of price pressures also continued to normalize — the diffusion index says the breadth of inflation in Canada is looking similar to pre-pandemic norm in 2019.”

“The hurdle for more Bank of Canada cuts this year is low and we continue to look for another 25-basis point cut at their next meeting in September.”

‘Growing possibility of larger 50 basis point cut later this year:’ Capital Economics

Olivia Cross, economist with Capital Economics, thinks core inflation measures may surprise to the downside of the Bank of Canada’s forecasts, which raises the possibility of a steeper policy cut by the central bank later this year.

“For now, the three-month annualized rate is still 2.7 per cent, down from 2.9 per cent, but if the recent momentum continues then core inflation would undershoot the bank’s forecast for the average of CPI-trim and CPI-median to be 2.5 per cent in the third quarter,” Cross wrote in a note to clients.

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“While that alone is probably not enough to prompt the bank to cut interest rates by a larger 50 basis points, it does leave the door open for the bank to take a larger step later this year if there is additional weakness in the labour market or activity data.”

‘Plenty of room for Bank of Canada to keep cutting:’ TD Bank

James Orlando, senior economist at Toronto-Dominion Bank, says inflation risks are fading. The focus is now on the overall health of the economy, Orlando notes, leaving the central bank with plenty of room to cut for the remainder of 2024.

“The Bank of Canada makes its next rate announcement in two weeks and there is nothing stopping the bank from cutting rates by another 25 basis points,” he wrote.

“With inflation risks fading, the central bank’s focus has pivoted to weakness in the rest of the economy. Indeed, consumer spending looks to have taken a breather alongside a steady deterioration in the jobs market.”

‘Rate cuts will keep coming:’ BMO

Benjamin Reitzes, economist with Bank of Montreal, thinks the July CPI report only cements a 25-basis-point cut by the Bank of Canada in September with more to come the rest of the year.

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“The core inflation figures were very encouraging, with the trim and median CPIs both up 0.1 per cent month-over-month,” Reitzes wrote in a note. “That cut the yearly rates one-to-two ticks to 2.7 per cent and 2.4 per cent, respectively, the lowest since April 2021.”

“There’s no urgency for policymakers to act more aggressively at this point, but rate cuts will keep coming as inflation continues to move toward two per cent and the economy sports a sizeable output gap.”

‘Canada’s disinflation solidifies the case for a September rate cut:’ RSM Canada

Tu Nguyen, economist with RSM Canada, also thinks the data solidifies a 25-basis point cut in September and continued cuts into 2025. Nguyen noted shelter finally showed a slowdown in price acceleration.

“Shelter has been the most stubborn piece of the inflation puzzle, which the Bank of Canada has finally begun to crack,” she said in a note. “Perhaps paradoxically, recent rate cuts are helping to dampen shelter inflation.”

“Inflation numbers have consistently come in below expectations this year and are firmly on track to reach two per cent next year,” she wrote. “We expect the Bank of Canada to announce two more 25-basis point rate cuts this year and a series of 25-basis point cuts in 2025 until the terminal rate is reached.”

• Email: jgowling@postmedia.com

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