Canada: Another rate cut possible if inflation continues its trend lower - Wells Fargo

According to analysts from Wells Fargo, in Canada if the inflation rate continues its trend lower, they would not rule out the possibility of another rate cut from the central bank.

Key Quotes:

“After growing by a 2.4 percent annualized rate in Q1, the Canadian economy contracted at a weaker-than-expected annualized rate of 1.6 percent in Q2. The economy was weighed down by an enormous drag from net exports. Canadian crude oil production also remained constrained from May’s wildfires in Alberta. Canada’s National Energy Board forecasts crude oil productions will rebound later this year.”

“Canadian consumers continued to spend in Q2. Personal consumption has been a steady growth driver this economic cycle, but might not be as sustainable as once thought as household consumer debt as a share of GDP fast approaches 100 percent—97.3 percent in Q2. The decrease in consumer demand more than likely is due to the deteriorating labor market dynamics in recent months, as multiple months of drops in full-time employment dampens growth. However, improvement in the employment component of the Ivey PMI may signal a pickup in hiring in coming months.”

“Headline inflation has slowed to 1.3 percent in July, and core inflation is at 2.1 percent, still within the Bank of Canada’s (BoC) target range of 1 percent and 3 percent. The BoC can leave its overnight lending rate unchanged without much pressure to move in either direction. Looking ahead, however, if the inflation rate continues its trend lower, we would not rule out the possibility of another rate cut.”