May saw the capital markets bounce back from the previous month. Reported inflation in Canada and the US continued to show signs of easing. Also, Canada’s GDP grew less than expected.
As mentioned above, Canada’s latest reported inflation rate came in at 2.7% (in line with expectations), compared to a 2.9% one month earlier. Whereas in the US, their latest inflation rate report came in at 3.4% (in line with expectations), compared to 3.5% in the previous month. These downtrend reports support the potential for rate cuts by the Bank of Canada and the Federal Reserve in the US, which is seen as a positive by the capital markets.
Here in Canada, it was reported that our economy expanded by 0.4% (measured by real Gross Domestic Product) in the first quarter of 2024. The growth in Q1 was in part fueled by higher rent prices and air transport. On an annual basis, real GDP grew by 1.7%, which falls short of expectations of 2.2%. The lack of substantial GDP growth in Canada can be viewed as a result of the high interest rate environment we are in. However, this low growth would also be a contributing factor to the Bank of Canada cutting interest rates this year in an effort to boost economic activity.
Only time will tell how many interest rates cuts we see in Canada and across the world over the coming months. But given the above economic data, one can be cautiously optimistic that rate cuts are closer than ever, which will help things like bond prices and mortgage and auto payments.
