Home Buying

Inflation Eased to 2.7% in June, Renewing Hope for Another Rate Cut in July

Inflation Eased to 2.7% in June, Renewing Hope for Another Rate Cut in July

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    As the fight against inflation continues, Canada’s inflation rate in June 2024 rose year-over-year to 2.7%, down from the 2.9% gain in May.

    Key Takeaways

    • Canada’s inflation rate eased to 2.7% in June 2024. 
    • The most significant contributors to deceleration were gasoline prices and durable goods. 
    • After the CPI reading, the probability of another rate cut occurring at the July 24th Bank of Canada announcement increased. 

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    Inflation Slows

    The most recent inflation rate of 2.7% was down from 2.9% in May. This month’s deceleration was mainly due to slower year-over-year growth in gasoline prices. Durable goods decreased by 1.8%, contributing to this month’s slowdown. 

    This month’s deceleration was offset by a 2.1% increase in prices for food purchased from stores and a smaller decline for cellular services, down 12.8% in June compared with 19.4% in May.

    The latest data from Statistics Canada shows that the measures of core inflation, which the Bank of Canada closely monitors, remained at 2.9% for CPI-trim while CPI-median fell to 2.6%.

    These figures move us closer to the central bank’s inflation target of 2%. Shelter continues to be the most significant driver of inflation, up 6.2% in June, down from 6.4% in May. Excluding mortgage interest costs, core CPI increased to 1.9% year-over-year, up from 1.8% in May.

    Shelter Continues to Climb

    Canadians continue to feel the impact of rising prices, as shelter prices increased 6.2% year-over-year. Year-over-year rent prices in Canada rose 9% in June, down 1% from May. Saskatchewan (+22%), Alberta (+16%) and Atlantic Canada (+16%) saw the most significant climb in rental prices year-over-year this month. Higher interest rates and population growth have continued to put upward pressure on the Canadian rent index. 

    Higher interest rates continue to make homebuying more expensive, forcing many to stay in the rental market and creating further competition that impacts rental prices. Shelter costs continue to be the most significant driver of inflation out of the 8 CPI components.

    Is a July Rate Cut a Possibility?

    At the June 5th announcement, the Bank of Canada finally decided to lower the policy rate from 5% to 4.75%. The Bank of Canada cited continued evidence of easing inflation, allowing the Governing Council to conclude that monetary policy no longer needed to be restrictive. 

    At this point, a rate cut in July appears to be back on the table, with most markets pricing in a high probability of a rate cut for the July 24th announcement. June’s data could indicate that the increase in inflation in May was an anomaly. We may still be on track to see inflation continue to ease in the coming months. 

    The latest inflation data from Canada and the US and Canada’s climbing unemployment rate will likely see the Bank of Canada avoid delaying further rate cuts.

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      How Does Canada Compare?

      When looking at global inflation rates, Canada’s 2.7% rate for June 2024 is moving in the same direction as what most of the world is currently experiencing. Many countries, with a few exceptions, are seeing inflation slowly come down or stagnate. US inflation fell year-over-year to 3.0% in June, down from 3.3% in April. 

      Frequently Asked Questions

      Welcome to our Frequently-Asked Questions (FAQ) section, where we answer the most popular questions designed and crafted by our in-house mortgage experts to help you make informed mortgage financing decisions.

      What is the inflation rate?

      The inflation rate is a measure of the rate at which the general level of prices for goods and services is rising and, subsequently, purchasing power is falling. Central banks attempt to limit inflation to keep the economy running smoothly.

      Why is the inflation rate important?

      The inflation rate is an important economic indicator because it affects the value of money and indicates the health of an economy. A moderate rate of inflation is generally considered normal in a growing economy. However, high inflation can erode purchasing power and create economic uncertainty.

      How is the inflation rate calculated?

      The inflation rate is calculated by comparing the current Consumer Price Index (CPI) to the CPI in a previous period. The CPI measures the average change in prices over time that consumers pay for a basket of goods and services.

      Final Thoughts

      The June 2024 inflation rate of 2.7% in Canada may mean the May inflation numbers were an anomaly, and we are still on track to see inflation return toward the 2% target. The BoC may lower rates at the July 24th announcement based on inflation data in Canada and the US and recent employment data. However, they will continue to monitor the situation closely and make adjustments in the future, if necessary, in an effort to keep inflation within the target.

      Whether you’re a homeowner with a mortgage, a renter, a business owner, or simply a consumer, it’s important to monitor the inflation rate and understand what it means for you. As we progress into the summer months, we will see how the Bank of Canada responds to these latest inflation figures and what that might mean for the Canadian economy.

      If you’re a homeowner up for renewal or a homebuyer looking for your new home, finding the best mortgage that suits your mortgage strategy can be challenging. Contact nesto’s mortgage experts and learn how to turn this challenge into an opportunity to save on your mortgage, refinance or renewal.

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