The Bank of Canada is due for a slight setback in its battle against inflation on Tuesday, say economists forecasting a higher Consumer Price Index (CPI) reading for July, driven by heftier grocery bills and energy costs.
Last month, Canada’s annual inflation rate dipped into the central bank’s target range of between one and three per cent for the first time since March 2021. According to Statistics Canada, CPI rose 2.8 per cent year-over-year in June, following a 3.4 per cent increase in May.
Economists say that progress will be short-lived. Royal Bank of Canada assistant chief economist Nathan Janzen sees CPI for July edging up to 2.9 per cent.
“The uptick in growth can be explained by rising energy prices. Though gas prices were still below year-ago levels in July, the decline was smaller than in June,” Janzen wrote in a forecast published last week.
“Food price growth probably remained high in July. But the pace of increases likely continued to slow, reflecting the lagged impact of lower commodity prices and easing supply chain disruptions.”
Doug Porter, Bank of Montreal’s chief economist, is calling for a rise “a bit above three per cent,” in line with recent U.S. Bureau of Labor Statistics data released last week.
Both Porter and Janzen point to signs of a slowing Canadian economy on the horizon, suggesting the Bank of Canada may keep its current lending rate in place until these subside.
“While markets are still debating whether the BoC or Fed will hike again, we believe that the case for the Bank to now stand aside is very strong,” Porter wrote.
“With the Bank of Canada signalling that its next rate hike decision will hinge on data—[Tuesday’s CPI reading] will be the most closely scrutinized,” Janzen added. “As more economic weaknesses emerge, underlying price pressures will continue to ease.”
Statistics Canada is set to release its CPI reading for July on Tuesday at 8:30 a.m. ET.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
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