First National Financial LP

Residential Market Commentary - Rate cut unlikely in July

  • First National Financial LP

Two economic reports have been delivered in the past week or so and they both contain information that the Bank of Canada uses to help make its interest rate decisions. In both cases the reports provide information about the economy before the Bank’s quarter-point rate cut on June 5th. 

Statistics Canada’s May inflation report drew the most attention and fueled the most speculation about the BoC’s next move on interest rates. 

The Consumer Price Index (CPI), or headline inflation, rose unexpectedly to 2.9%, up from 2.7% in April, reversing several months of declines. Most of the increase was driven by higher prices for services like cellphones and travel but mortgage costs and rent continued to be key contributors. 

Core inflation (CPI-median and CPI-trim), the Bank’s preferred measures of underlying inflation, were also up. On average, core inflation rose to 2.85%, up from 2.7% in April. 

April’s Gross Domestic Product numbers grew 0.3% in April, after flat-lining in March. The increase puts the economy on track to beat expectations in the 2nd quarter. 

The inflation and GDP numbers have dampened hopes the BoC will announce another rate cut in July. Most market watchers are now looking to September. 

The Bank’s next rate announcement is set for July 24.