In July, Canada's inflation rate decreased to 2.5%, primarily driven by high shelter prices, which are beginning to show signs of slowing.

The central bank noted that excess supply in the economy and slowing shelter price inflation are key factors contributing to the decrease in inflation rates.

This decline in inflation has prompted the Bank of Canada (BoC) to cut interest rates, reflecting ongoing economic softness and easing inflationary pressures.

On September 4, the BoC lowered its overnight rate target by 25 basis points to 4.25%, a decision influenced by the need to address economic weakness.

Market expectations had anticipated a more aggressive easing approach, but the BoC's cautious stance resulted in a smaller rate cut.

TD Chief Economist Beata Caranci supported the quarter-point cut as appropriate given the mixed signals from the economy and labor market.

Despite the challenges, the Canadian economy grew by 2.1% in the second quarter of 2024, largely due to government spending and business investment.

However, rising unemployment and slow economic growth remain concerns, influencing the BoC's monetary policy decisions.

The BoC's actions align with its ongoing balance sheet normalization policy, as it navigates the delicate balance between stimulating growth and controlling inflation.

In the broader market context, the S&P/TSX Composite Index ended slightly down, although sectors like real estate and healthcare showed resilience.

Looking ahead, the BoC anticipates further strengthening of economic growth in the latter half of the year, despite current uncertainties.

Analysts predict that the BoC will continue to reduce rates, potentially lowering them to 3% by summer 2024, as part of an ongoing easing cycle.