BoC reduced its overnight rate by 25bps to 4.25%, as widely anticipated. In its statement, the central bank highlighted the “opposing forces” at play on inflation. On one hand, excess supply is pushing inflation lower, while rising costs in the shelter and services sectors are keeping inflationary pressures elevated. BoC reaffirmed that future policy decisions will be data-dependent, guided by the evolving inflation outlook.
While Q2 GDP growth came in at 2.1%, “slightly stronger than forecast,” the central bank noted that economic activity softened in June and July based on preliminary indicators. The labor market, though slowing, continues to see wage growth at elevated levels.
Inflation has slowed to 2.5%, in line with BoC’s expectations, and core inflation remains around 2.5%. The share of CPI components growing above 3% has returned to its “historical norm.”
High shelter price inflation remains the largest contributor to overall inflation, although it is beginning to cool. However, inflation in other services remains persistently elevated, keeping upward pressure on prices.
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