Back in June the Bank of Canada came through with some long desired interest rate relief. It clearly signalled the rate hiking cycle was over with a quarter-point cut that put the trend-setting policy rate at 4.75%.
The economic forecasters took a quick look at what might happen in the coming weeks and months and most of them packed up their crystal balls for the summer. The broad consensus was there would be no movement on interest rates until September.
Well, that changed in a hurry. Chances of another quarter-point cut, at the July setting this week, are now seen to be more than 90%.
Here is what happened. Canada’s June inflation reading dipped again, dropping back down to 2.7% after climbing to 2.9% in May. The expectation had been for no change at all.
Canada’s job market continued to show weakness. The unemployment rate rose to 6.4% in June, up two-tenths of a percentage point from May. Fourteen-hundred jobs were lost. Expectations had been for the creation of 25,000 positions.
Consumers have curtailed spending. Retail sales, which account for about 60% of Canadian GDP, dropped 0.8%, month-over-month in May. It is estimated that June will see a further 0.3% decline.
And finally, inflation in the U.S. is showing steady signs of decline. It dropped to 3.0% in June, down from 3.3% in May. Expectations are for a Federal Reserve rate cut in September. That, in turn, eases concern here about “divergence” (Canadian rates being so much lower than U.S. rates that the value of the Loonie falls).