On Tuesday, Statistics Canada stated that the Consumer Price Index (CPI) measured inflation of 2.5% for July. That’s down from 2.7% in June, and is the lowest inflation rate recorded since 2021.
Deceleration in headline inflation led by shelter component , 12-month % change
| CPI basket items | June 2024 | July 2024 |
|---|---|---|
| All-items Consumer Price Index | 2.7% | 2.5% |
| Food | 2.8% | 2.7% |
| Shelter | 6.2% | 5.7% |
| Household operations, furnishings and equipment | -0.9% | -0.1% |
| Clothing and footwear | -3.1% | -2.7% |
| Transportation | 2% | 2% |
| Health and personal care | 3.0% | 2.9% |
| Recreation, education and reading | 0.6% | -0.2% |
| Alcoholic beverages, tobacco products and recreational cannabis | 3.1% | 2.7% |
In fact, if you take shelter out of the equation, we’re getting close to zero inflation. And that’s significant for two reasons:
- The shelter-inflation rate (primarily a measurement of rent and mortgage expenses) did come down substantially between June and July.
- As the Bank of Canada (BoC) cuts interest rates, the inflation component of the CPI will inevitably go down as Canadians will have access to mortgages with lower rates.
Notably, passenger vehicle prices were down 1.4% in July. Clothing and footwear was also down by 2.7%. Food and gas were up by 2.7% and 1.9% respectively. British Columbia and New Brunswick had the highest inflation rate growth, while Manitoba and Saksatchewan had the lowest.
It’s pretty clear there’s no longer an overall inflation crisis in Canada. It’s now simply a home affordability issue at this point. Economists were widely predicting that this continuing trend of a downward inflation rate would clear the way for continued interest-rate cuts in the coming months. Money markets are now predicting a 0.25% cut minimum on September 4, with a 4% probability that the cut will be 0.50%. Looking further down the road, those same markets are predicting there is a 76% chance we will see a 2% decrease by October of 2025.
I hope you locked in those guaranteed investment certificates (GICs) or bonds when you could still snag those high rates Check out MoneySense’s list of the best GIC rates in Canada, and my article on low-risk investments over at MillionDollarJourney.com.
A bullseye for Target
Target Corporation posted a big earnings beat on Wednesday and shareholders saw its shares increase in value by 11.20%. The Minneapolis-based discount retailer is the seventh-largest in the U.S.
Retail earnings highlights
All numbers are in U.S. dollars.
Same-store sales for Target grew 3% last quarter, after five straight quarters of declining sales. More purchases of discretionary items like clothing were responsible for the positive reversal to the declining sales trend.
Target’s COO Michael Fiddelke had a very cautious tone, though. “While we’ve been pleased with our performance so far this year, our view of the consumer remains largely the same. The range of possibilities and the macroeconomic backdrop in consumer data and in our business remains unusually high.” And Target CEO Brian Cornell cited price reductions and a value-seeking consumer as reasons for increased foot traffic in the quarter.
It was very much a mediocre earnings report for Lowes, though, as it beat earnings expectations decisively but cut its full-year forecast. Shares were down by about 1% on Tuesday after the earnings announcement.
Lowe’s CEO Marvin Ellison said consumers were waiting for cuts in interest rates before taking on large home improvement projects. Because 90% of Lowes’ customers are homeowners (as opposed to contractors), they are particularly sensitive to movements in interest rates, he shared. Same-store sales were down 5.1% year over year.
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