Synopsis:

CIBC notes that Canadian inflation continued to ease in July, aligning with expectations and maintaining the potential for additional interest rate cuts by the Bank of Canada (BoC).

Key Points:

• Inflation Easing:

  • Headline inflation eased to 2.5% year-over-year in July, with a 0.4% NSA (0.3% SA) monthly increase in prices, both figures matching consensus expectations.
  • Gasoline prices were the largest contributor to the monthly price increase, while mortgage interest costs continue to add to inflation despite the recent rate cuts.

• Core Inflation Measures:

  • Core inflation measures were relatively subdued, with ex-food/energy prices rising by only 0.2% on a seasonally adjusted basis.
  • CPI-trim and CPI-median both advanced by a modest 0.1% m/m.

• Economic Concerns:

  • While inflationary pressures are diminishing, there are growing concerns about a weakening labor market.
  • CIBC continues to forecast three additional 25bp rate cuts by the BoC in the remaining meetings this year.

Conclusion:

The latest Canadian CPI data supports the case for further interest rate cuts by the Bank of Canada. With inflation easing but labor market concerns growing, CIBC expects the BoC to implement additional cuts in the coming months.