Canada’s annual inflation rate dropped more than expected in June to 2.8%, a 27-month low, though food prices remain elevated and core measures of consumer prices remained stubbornly high.
The Canadian dollar and government bonds yields moved slightly lower after the data release. Meanwhile, implied interest rate probabilities based on trading in swaps markets show about an 80% chance the Bank of Canada will hold interest rates unchanged at its next policy meeting on Sept. 6, according to Refinitiv Eikon data. That’s up from about a 76% probability prior to this morning’s inflation data release.
Headline inflation will likely creep back above 3% in the coming months, as base effects from lower gasoline prices become less generous. However, it was the stickiness of core inflation measures which was a concern for the Bank of Canada, and with CPI-trim and median showing little further progress towards the target band there remains a very real risk that interest rates could be raised again after the summer.
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