Canada's Consumer Price Index (CPI) inflation for April aligned with market expectations at 2.7% year-over-year (yoy), marking a decrease from the 2.9% observed in March.
This deceleration was primarily due to a significant drop in food prices, which fell to 2.3% yoy from 3.0% in the previous month, although this was partially counterbalanced by a 6.1% yoy increase in gasoline prices.
Excluding gasoline, the CPI experienced a more notable decline to 2.5% yoy from March's 2.8%.
The average of the Bank of Canada's (BoC) two core measures, the trimmed and median CPI, decreased to 2.75% yoy from March's 3.05%. The trimmed mean CPI dropped to 2.9% yoy from 3.2%, and the median CPI fell to 2.6% yoy from 2.9%.
This reduction in core inflation was supported by a decrease in shelter inflation, which saw its first decline since November 2023, and a decrease in mortgage interest costs to 24.5% yoy from 25.4%.
In light of the April CPI data, Bank of America has revised its inflation forecasts slightly upwards. It now anticipates inflation to reach 2.2% yoy by the end of 2024, a slight increase from the previous forecast of 2.1%.
The forecast for the end of 2025 remains unchanged at 2.0% yoy. Despite recent cooling in oil prices, the firm anticipates that they will continue to exert upward pressure on prices through economic activity.
The current trajectory of core inflation and other economic indicators, such as a softening labor market and growth below potential, have led Bank of America to anticipate a rate cut by the BoC in June.
The firm suggests that the central bank may initiate a series of rate cuts, with a baseline expectation of 25 basis points consecutive reductions, leading to a policy rate of 3.75% by the end of 2024 and 3.00% by the end of 2025.
"We believe the BoC can cut even if the Fed takes longer to cut. Our baseline is 25bp consecutive cuts once the BoC gets going, so we expect the policy rate at 3.75% by end-2024 and 3.00% by end-2025," BofA economists said.
"The risk to our view is for fewer cuts as the BoC could cut at a slower pace than in our forecasts while it waits for the Fed to cut."
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