Inflation eased to 2.7 per cent in April, the slowest since the Bank of Canada lost its grip on prices in the spring of 2021, opening the door to an interest rate cut in June. Here’s what you need to know: 

One down: Canada’s battle with inflation has been agonizing because the cost of food and shelter were among the primary drivers of price pressures. One of those—food—is finally settling. Statistics Canada’s index of prices at grocery stores and restaurants increased 2.3 per cent from April 2023, compared with three per cent in March and the lowest since July 2021. 

Shelter remains sticky, though. The agency’s index of what it costs to keep a roof over one’s head was 6.4 per cent higher year over year, little changed from the previous month. Mortgage interest costs remain the primary driver, followed by rent. 

Core of the matter: The Bank of Canada could alleviate shelter costs by cutting interest rates, assuming it’s comfortable that doing so wouldn’t cause prices to flare elsewhere. That decision will rest on what policymakers think various measures of “core” inflation are telling them. The average of the Bank of Canada’s two preferred gauges was 2.8 per cent, down from three per cent in March; the three-month average of each of those indexes was below the central bank’s two per cent target for a second consecutive month. Another measure of core inflation, which excludes the eight most volatile items of the CPI basket, increased only 1.6 per cent on the year. 

A cut is coming: Economists at CIBC, Desjardins, Manulife, the Canadian Chamber of Commerce and RSM Canada were quick to say the latest inflation numbers justify a rate cut when the Bank of Canada next meets in early June. The chamber’s Andrew DiCapua said in a statement that the business lobby’s spending tracker is flagging the “fragility” of economic growth. The argument against a cut is that inflation can get sticky; the year-over-year rate dropped to 2.8 per cent in June 2023 and then re-accelerated to four per cent. One difference between then and now is the labour market was still strong. The jobless rate was around 5.5 per cent last summer. It’s above six per cent now.