Economists Divided On Bank Of Canada Rate Cut As Inflation Falls

Expectations for an interest rate cut from the Bank of Canada in September remain mixed as data shows that inflation across the country continues to decline. Canada’s annual inflation rate fell to 1.7% in July, according to Statistics Canada, down from 1.9% in June. The reading was below the consensus forecast of economists polled by Reuters. Statistics Canada said the central banks’ preferred measures of core inflation, which strips out volatile food and energy prices, held steady at 3% in July. Inflation on food from grocery stores accelerated to 3.4% annually in July, up from 2.8% in June. Also, a 16% year-over-year drop in gas prices due to the removal of the carbon tax was largely responsible for the overall inflation decline seen in July. That fact has left economists and traders divided on whether the Bank of Canada will lower interest rates at its next policy meeting scheduled for Sept. 17. Futures traders are now placing the odds for a 25-basis point interest rate cut in September at 40%, according to LSEG data. Canada’s central bank held its trendsetting overnight interest rate steady at 2.75% at its last meeting in July. The Bank of Canada continues to say that it is looking for signs of how the country’s tariff dispute with the U.S. is impacting inflation and is particularly concerned with core inflation. Markets are also looking for direction from the U.S. Federal Reserve on its likely interest rate path in this year’s second half.