The consumer price index report released on Tuesday, by Statistics Canada, is the last before the Bank of Canada makes its overnight interest rate announcement on June 5.
Statistics Canada announced that the consumer price index (CPI) rose throughout the country at 2.7 per cent in April, down from 2.9 per cent in March, on Tuesday morning.
The fall of CPI to 2.7 per cent leaves Canadians hopeful that the Bank of Canada will introduce a cut to the current overnight interest rate of 5.25 percent.
On eight scheduled dates each year, the Bank of Canada said they will announce the setting for the overnight interest rate target and explain the factors behind the decision.
The current interest rate of 5.25 per cent is the highest in the past 20 years, according to data provided by Statistics Canada. The interest rate made a jump in 2022 from 2.75 per cent to 3.50, and has been on a steady incline since.
The Bank of Canada, in a 2024 financial stability conference released on May 9, said a lower CPI rate does not guarantee a drop in the interest rate. In a statement Bank of Canada said:
“Inflation in most economies has come down, and inflation targets are in sight. However, there could be volatility in markets as expectations shift about when and by how much central banks will lower their policy rates. And there continue to be important geopolitical and economic risks on the horizon.”
The CPI announcement from Statistics Canada reported that, overall, CPI has slowed within the all-items sector.
“Excluding gasoline, the all-items CPI slowed to a 2.5% year-over-year increase, down from a 2.8% gain in March,” the report said.
Gasoline prices, as reported by Statistics Canada, rose in April. “Consumers paid 6.1% more at the pump year over year in April, following a 4.5% increase in March.”
“Higher costs associated with switching to summer blends, higher oil prices due to supply concerns and an increase in the federal carbon levy all contributed to the increase in prices,” the report said.
According to a Bank of Canada release on April 10, the Bank expects CPI inflation to be close to 3 per cent during the first half of 2024, move below 2.5 per cent in the second half, and reach the 2 per cent inflation target set for 2025.
The 2 per cent inflation target, according to the Bank of Canada, is necessary for building a stronger Canadian economy, and reaching this target will support a decrease in overnight interest rates.
“When inflation is near the target it tends to remain there, and prices are more stable. That helps the economy function better,” the Bank of Canada reported.
The June 5 announcement will provide more information on how the Bank of Canada views the current economic situation in Canada.