According to experts, the Bank of Canada is expected to lower the benchmark interest rate to 4.5% in response to softer inflation in Canada in June. This anticipated rate cut follows a similar 25-basis point cut in June, reflecting a weakening economic backdrop and easing underlying inflation.
The BoC is likely to focus on the recent trend of lower consumer price index readings, with risks of a less aggressive easing bias due to mixed progress in inflation measures. The central bank’s preferred measures of “core” inflation have shown some improvement on a three-month annualized basis since April, although the six-month annualized readings remain lower due to previous lower prints earlier in the year.
Looking ahead, indicators from the Q2 Business Outlook Survey suggest a further decrease in price pressures, as fewer firms expect significant price increases in the next year. Business expectations for inflation and wage growth are also moderating, reflecting cooling labor market conditions and a slight increase in the unemployment rate. Data from the Survey of Employment, Payrolls, and Hours (SEPH) is expected to confirm these trends, showing a decline in wage growth and job vacancies in May.
In the upcoming week, the focus will be on U.S. GDP growth in Q2, which is expected to be around 1.4% annualized, similar to the first quarter. Higher household consumption is likely to offset a decline in residential investments, while trade deficits may have widened due to growth in imports outpacing exports.
Personal consumption in June is expected to increase slightly, along with personal income growth, although at a slower pace compared to the previous month. This aligns with the trend of slower wage growth observed in recent payroll reports.
Overall, the economic outlook points towards a cautious approach by the Bank of Canada in response to evolving inflation and economic conditions. With uncertainties lingering, investors and businesses are advised to stay informed and prepared for potential changes in monetary policy and economic indicators.