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Shopping in a Whole Foods Market supermarket in New York on Monday, August 12, 2024.
US inflation falls to three-year low
A closer look: Annual core inflation — which strips out volatile energy and food costs — fell from from 3.3 to 3.2 since June, suggesting pandemic-era supply constraints continue to ease. Grocery prices rose only 1.1% and gas prices fell 2.2% over the past year.
These trends mirror what’s happening north of the border, where falling inflation allowed the Bank of Canada to begin cutting rates this summer for the first time in four years.
The political impact: Falling inflation should in principle be good news for American Democrats and Canadian Liberals, since incumbents are typically held to account for economic perceptions. That said, Justin Trudeau’s polling numbers are so bad right now it’s hard to see what, if anything, could temper the negative vibes around him.
For Kamala Harris, meanwhile, the numbers provide a fresh tailwind as she flies into North Carolina for her economic policy rollout speech on Friday.
A pile of money sitting on top of a table.
No rate cut for Biden or Trudeau
It looks like neither Joe Biden nor Justin Trudeau can count on lower interest rates to give them the economic or political boosts they need.
In the United States, hopes for a rate cut were dimmed when Wednesday’s consumer price index numbers dropped. The index was up 3.5% in March compared to last year, higher than February and higher than expected, which means the Federal Reserve is unlikely to cut rates in the US anytime soon.
The Bank of Canada, meanwhile, held its benchmark rate steady for the sixth straight time on Wednesday, but Bank of Canada Gov. Tiff Macklem offered room for hope. “We need to be sure this is not a temporary dip in inflation,” he said, noting that a rate cut in June is still possible.
Both Biden and Trudeau desperately want inflation to ease and for interest rates to drop – to ease cost-of-living concerns for voters.
On Tuesday, former Bank of Canada and Bank of England Gov. Mark Carney – notably considered a potential successor to Trudeau – said the era of steady low-interest rates may be over because of structural changes – namely greater volatility and the shift to a low-carbon economy.
This perspective will be a cold comfort to the Biden and Trudeau camps as they face the prospect of asking for votes while mortgage rates, grocery, and gas bills remain high.