July inflation points to BoC rates holding steady next month

Inflation rate was essentially unchanged from a month prior, indicating sustained stability

July inflation points to BoC rates holding steady next month

Higher-than-expected inflation in July has pulled down the odds of a Bank of Canada interest rate cut even lower.

The economy posted a 2% inflation rate last month, according to Statistics Canada’s Consumer Price Index. This was essentially static, remaining at a similar level to that seen in June, and defying expert predictions of a slight shrinkage.

Immediately before the numbers were released, traders were pegging a one-in-five chance for a rate cut in September, in response to anxiety surrounding the possibility of a global recession.

However, the StatsCan reading indicated a stable, robustly performing economy. Thus, the chance of a downward adjustment in the BoC rate was revised to less than one in six, per Bloomberg’s latest polling of economists.

In July, the BoC decided to retain its interest rate at 1.75% for the sixth straight policy meeting.

Writing for the Financial Post, long-time markets observer Kevin Carmichael argued that Canada might consider following the lead of Norway’s central bank, instead of the commonly expected U.S. Federal Reserve.

“The Bank of Canada probably has more in common with the Norges Bank for now than it does the Fed,” he explained. “Both oversee rich, mid-sized economies that rely on commodity prices and external demand to a greater degree than most developed economies. Both were inclined to raise interest rates until conditions outside their control upended their plans.”

“The global risk outlook entails greater uncertainty about policy rates going forward,” Carmichael quoted the Norwegian central bank’s statement on its latest decision to hold rates.

 

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