Encouraged by underlying trends in the Canadian economy, the Bank of Canada announced today a 0.25% reduction in its key interest rate, bringing it down to 4.50%. This is the second consecutive monthly rate cut, signaling a shift towards a more accommodative monetary policy.

Inflation in Canada

After rising in May, inflation measured by the Consumer Price Index moderated to 2.7% in June. Broad-based inflationary pressures are easing, with core inflation measures below 3% for several months. However, rising housing costs remain a key factor in overall inflation, driven by rents and mortgage interest costs.

Canadian Economy: Performance and Outlook

Economic growth strengthened to around 1.5% in the first half of 2024. However, with population growth at about 3%, the economy’s potential output continues to grow faster than GDP, increasing excess supply.

Household spending, including consumption and housing, has been weak, and the unemployment rate has risen to 6.4%, indicating unused capacity in the labor market. Wage growth shows signs of moderation but remains high.

The Bank of Canada projects GDP growth of 1.2% in 2024, 2.1% in 2025, and 2.4% in 2026, with a recovery in household spending and business investments.

Global Economy: Performance and Outlook

The global economy is expected to continue growing at an annual rate of about 3% through 2026. While inflation remains above central bank targets in most advanced economies, it is expected to gradually decline. In the United States, consumption growth is moderating, and inflation appears to be back on a downward path.

Comments and Prospects

The Bank of Canada anticipates that GDP growth will help absorb excess supply throughout 2025 and 2026. Price pressures continue to ease, and the Bank expects inflation to approach its long-standing 2% target.

The next monetary policy announcement is scheduled for September 4. In the meantime, we invite you to check our resources for more information.