Canada’s inflation rate has been declining at a steady pace over the last year, from 8.1% in June 2022 to 2.8% in June 2023. That’s the lowest level since early 2021. And at 2.8%, Canada’s inflation rate has fallen within the Bank of Canada’s target range of 1% to 3% percent.
Despite the big drop in inflation, the central bank has said it will continue to take steps to ensure the rate drops to two percent. This can only mean the Bank of Canada will continue to raise its key lending interest rate, which currently stands at 5%, the highest level in 22 years.
What’s Next for Canadians?
While Canada’s inflation rate has fallen drastically over the last 12 months, the Bank of Canada expects inflation to stick at approximately 3% for the next year before steadily falling to the 2% target in mid 2025.
With inflation down, Finance Minister Chrystia Freeland is calling it a “milestone moment” which “should provide a lot of relief to Canadians.” But it may be a little too early to celebrate.
While Canadian consumers paid nearly 15% less for cellphone services than they did a year ago, and less for gasoline, grocery prices continue to climb higher, with those costs rising 9.1% on an annual basis, higher than the 9.0% rate in May. Not everyone has a cellphone or drives a car, but everyone needs to eat.
The June inflation data is certainly good news for Canadians, but inflation isn’t falling as quickly as the Bank of Canada wants, which means it will continue to do what it can to cool the economy, which means additional rate hikes.
Rising interest rates make it more expensive for consumers and businesses to borrow, which chokes off demand, lowers inflation, and hopefully prevents a recession. It also drives up interest rates that Canadians pay on their mortgages. If you take mortgages out of the equation, the annual inflation rate is actually at 2%.
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Economic data shows that Canadian inflation is going in the right direction, but the central bank has suggested its too early to even consider a rate cut. The Bank of Canada will make its next rate decision on September 6. How will falling inflation and potential rate hikes impact Bay Street and Wall Street? Ask the trading professionals at Learn-To-Trade.com.
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Also Read: Bank of Canada Unexpectedly Raises Rates
