Canada’s consumer price index report for April offers a clear message for the Bank of Canada: A rate cut in June is a no brainer.
Headline inflation fell to 2.7 per cent, within the 1 per cent to 3 per cent range for the fourth month in a row and the lowest since early 2021, a full year before this rate hike cycle, according to data released Tuesday by Statistics Canada.
Notably, all core inflation measures declined and are now within the 1 per cent to 3 per cent target range. All data in the report points to a clear rate cut.
Excluding mortgage interest payments, inflation fell to 1.8 per cent. Excluding shelter, the number was at a low 1.2 per cent—both below pre-pandemic levels.
As the economy drags along and disinflation proves to be a sustained trend, there is no reason for the Bank of Canada to wait any longer. In fact, delaying rate cuts risks an unnecessary policy error.
A rate cut will allow the economy to begin recovering in the second half of the year, something that cannot come soon enough for consumers and businesses.
The report is the last major data point before the Bank of Canada’s interest rate decision on June 5.
Read more of RSM Canada’s insights on the economy and the middle market.
Consumers can breathe a sigh of relief that the multiyear run of high food inflation is also coming to an end. Groceries prices only rose by 1.4 per cent on an annual basis, below 2 per cent for the second month in a row and below pre-pandemic levels.
As housing and gasoline remain pain points for consumers, the slowdown in increases in groceries prices is surely welcome news.
Gasoline prices rose by 6.1 per cent on a year-over-year basis, up from 4.5 per cent in April. The increase is because of a combination of factors, including increasing travel and longer trips in the spring and summer, higher oil prices because of supply concerns, and the 10-cent-per-liter increase in federal carbon levy.
The takeaway
As the job market softens and global supply chains learn to operate in a new era, disinflation is likely to continue, bringing inflation to 2.5 per cent this year and 2% in 2025.
