Are rate of interest cuts imminent within the US?
While Canada’s inflation rate is clearly the first consideration when setting the Bank of Canada’s (BoC) policy rate, inflation below the border can be a very important consideration. One could argue that policymakers not willing to devalue the Canadian dollar above a certain level. If inflation within the US stays high – and US rates of interest remain correspondingly high – it will likely affect how quickly the BoC can lower our rates of interest.
“The Canadian and American economies are very closely intertwined, particularly when it comes to borrowing costs. Historically, the BoC and the Fed have mirrored each other in terms of monetary policy (lowering, maintaining or raising their key interest rates).”
—Penelope Graham, Mortgage expert
Markets were largely unchanged on Thursday after the U.S. Bureau of Labor Statistics announced that the patron price index (CPI) fell 0.1 percent from May and that the inflation rate during the last 12 months is now at 3 percent.
US Inflation Highlights
The CPI report contained the next details:
- The core CPI (excluding food and energy) rose by 0.1 percent and was 3.3 percent above the previous yr.
- Gas prices fell by 3.8 percent.
- Food prices rose by 0.2 percent.
- Accommodation prices rose by 0.2%.
- Used automotive prices fell by 1.5%.
- Real hourly wages rose by 0.4% over the course of the month.
Overall, the declining inflation rate and the Comments about keeping rates too high for too long this week, each of which appear to point to a probable rate cut in September. CME Group’s FedWatch tracker uses futures contracts to predict the likelihood of rate moves and currently shows a high probability of two rate cuts before the top of 2024. There’s even a 40 percent probability of three cuts before the top of the yr.
This is in fact welcome news for indebted Americans, but in addition for consumers in Canada who would really like to see rates of interest reduced here sooner somewhat than later.
Pepsi’s sales are stagnating
Beverage and snack giant PepsiCo released lukewarm earnings reports on Thursday. For those unfamiliar with Pepsi’s corporate structure, the corporate has long since ceased to be a pure beverage company. With brands starting from quite a few snacks and soft drinks to breakfast cereals, Pepsi is a diversified food company that also includes FritoLay and Quaker.
Pepsi earnings highlights
All figures in US dollars.
- PepsiCo (PEP/NASDAQ): Earnings per share amounted to $2.28 (versus $2.16 forecast) on revenue of $22.50 billion (versus $22.57 billion forecast). Shares lost nearly 2% in early trading Thursday.
The company cited declining demand in North America because the foremost think about the slowdown in sales growth. Company executives explained that North American consumers have turn into more price-conscious after being unable to withstand significant price increases lately. Low-income earners are the patron group most willing to modify to cheaper private label products. The rising cost of agricultural commodities was also cited as a rising operating cost. It is value noting that some market observers imagine that weight-loss drugs akin to Ozempic and Wegovy could dampen demand for snack foods within the North American market.
FritoLay’s North American sales declined 4% yr over yr, while North American beverage sales declined 3%. These sales declines were offset by a 7% increase in international revenue yr to this point. Management highlighted that this was the thirteenth consecutive quarter of mid-single-digit organic sales growth for the international business.
