Pundits mused that the Bank of Canada’s June quarter percentage point Key Rate increase was meant to pour cold water on the economy, employment, and inflation. May inflation shows that CPI inflation dropped by 1% from April to now sit at 3.4%.

What may have influenced the BoC decision to raise the Key Rate on July 12th was that much of the “cooling” could be attributed to lower gas prices which were around $1.55 in May 2023 compared to May 2022 when they edged higher than $2.

To the south, the U.S. Federal Reserve held their Benchmark Rate in June, as May’s annualized inflation rate in the U.S. dipped to 4%. Then on July 12th, it was reported that U.S. inflation had dropped to 3%.

Inflation in both countries is about a third of what it was a year ago. Last June, inflation surged. Canada's inflation rate rose to 8.1% and U.S. consumer prices jumped by 9.1% year-over-year. What was then often referred to as “transitionary inflation” by both Central Banks suddenly seemed to be out of control. Policy Rates had already increased and there was no taming of inflation in sight. 

A year later, Total Inflation is on its way to the 2% target set by both Central Banks. But the Bank of Canada is likely looking for a sustained drop in the Core Rate because it strips out volatile segments like gasoline and food, which tend to move up and down a lot. Employment looks to be cooling, with Canada’s unemployment rate up 0.2% in May, the first increase since August 2022. However, retail sales data showed Canadian consumers were still spending at rates that aren’t indicative of a slowing economy.

With every new bit of data coming in from both sides of the border, forecasters and markets are “betting” on Up, Down, or Hold. There is no scheduled Rate Announcement for August for either the BoC or the U.S. Federal Reserve. So, for now it’s wait and see as economists crunch numbers and the rest of us enjoy a summer break.