Today’s only piece of domestic data provides a bit of a break for the Bank of Canada. The latest reading of the Consumer Price Index shows inflation dropped to 1.2% in May, down from 2% in April. The decline, which was greater than expected was led by lower fuel prices. Core inflation, excluding food and fuel, also dropped hitting 1.8% in May, down from 2.1% in April.
These numbers along with yesterday’s surprise changes to Canada’s mortgage rules and the weakening global economic outlook ease the pressure on the central bank to raise interest rates.
That gloomy international picture is even drearier today. The latest data shows German business sentiment sank for the second month in a row in June and now sits at its lowest level in two years, while U.S. factory growth slowed to its lowest level in 11 months. And, after the close yesterday, Moody’s cut its ratings for 15 of the world’s biggest banks, including RBC. Exposure to risky capital markets appears to be the main reason. RBC, the only Canadian bank on the list, fell two notches from Aa1 to Aa3.
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