Key Takeaways

Statistics Canada recently released Consumer Price Index (CPI) data for June 2024. On a year-over-year basis, the CPI increased by 2.7% in June, which is down from a 2.9% gain in May. The decrease was driven by deceleration in gasoline prices, which increased 0.4% year-over-year compared to an increase of 5.6% in May. When gasoline is excluded, the CPI increased by 2.8% in June. On a seasonally adjusted monthly basis, the CPI rose 0.1% in June. BC’s year-over-year inflation was slightly below national levels at 2.6%.

June saw a divergence between goods inflation and services inflation. Goods inflation saw a mild increase of 0.3%, while services inflation accelerated to 4.8%. Services inflation is likely to remain elevated, as wage growth continued to accelerate in June to 5.4%.

Durable goods prices fell by 1.8% year-over-year, which may be due to decreased demand as consumers delay discretionary purchases due to high interest rates. Grocery prices increased by 2.1% year-over-year, the second consecutive month in which they have accelerated. Annually, rents grew by 8.8% and shelter prices grew by 6.2%, both of which are slightly below their levels in May.


Commentary

June’s CPI was slightly better than the Bank of Canada’s April inflation forecast, which predicted year-over-year growth of 3%. June’s 2.7% rate remains within the Bank’s target range of 1-3% for inflation. Given target range inflation and surveys showing progress on inflation expectations, the Bank is in position to lower rates at next week’s July 24 meeting. Markets are predicting a July cut, with the probability of a cut rising from 36% to 90% after the CPI announcement.  However, given wage growth and services inflation, the Canadian Chamber of Commerce believes that the Bank will take a cautious approach. The Chamber expects that the Bank will manage expectations for future cuts and, while they have the ability to cut rates, doing so is not a sure thing.

“I’m not too excited about today’s release, despite growing evidence that the Bank is likely to cut rates next week. We believe they’ll adopt a more cautious approach. Business inflation expectations have fallen within the Bank’s target range, indicating slower and more muted prices changes. June’s deceleration was primarily driven by lower transportation costs and subdued energy prices. However, accelerating services inflation poses significant risk to inflation progress. With solid economic growth in the background, waiting until September seems prudent.”
-Andrew Dicapua, Senior Economist, Canadian Chamber of Commerce

Read More:
Canadian Chamber of Commerce Commentary
Statistics Canada Commentary