Canada Inflation Cools to 40-Month Low of 2.5% in July

• Canada's annual inflation rate cooled to a 40-month low of 2.5% in July, matching forecasts. Core inflation measures eased as well, data showed on Tuesday, keeping the Bank of Canada (BOC) on track to cut interest rates again in September.
• Analysts polled by Reuters had forecast inflation to cool to 2.5% from 2.7% in June. The consumer price index also aligned with forecasts, up 0.4% on a monthly basis according to Statistics Canada data.
• Money markets expect another 25-basis point cut at the BOC’s next rate announcement on Sept. 4 and are nearly pricing in a total of three more cuts this year. Most economists are also factoring in a similar rate reduction trajectory for the rest of the year, which would bring down the benchmark rate to 3.75% by year-end.
• "With inflationary pressures fading away but concerns about the weakening labour market growing, we continue to forecast three further 25bp cuts by the Bank of Canada at the remaining meetings this year," said Andrew Grantham, senior economist at CIBC Capital Markets.
• The central bank trimmed its policy rate at its last two meetings, bringing it down to 4.5% from 5.0% before the first cut. But at its monetary policy announcement last month, it pivoted from the narrative of only trying to suppress inflation to also boosting the economy. The inflation rate is now the closest to the Canadian central bank's 2% target since 2.2% inflation in March 2021, when prices were beginning to rise after about a year into the coronavirus pandemic.

(Source: Reuters