Closeup of woman hand holding a fuel pump at a station.
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It’s been bad news so far on the inflation front this year, but a new report from BMO Capital Markets suggests the trend may be starting to turn.

This week, oil prices — a primary driver of soaring inflation — dropped sharply, back to pre-Ukraine invasion levels, BMO said in the report.

“In fact, a broad basket of commodity prices is now lower than pre-invasion levels, with items as diverse as copper, lumber, wheat and oil all down since late February,” it said.

The broad-based pullback in commodity prices isn’t the only bit of good news for the inflation picture, it noted.

“It appears that fortunes have finally shifted, between signs that supply chains are improving and the pullback in energy costs,” it said.

RBC Economics echoed the good news on U.S. inflation, saying that it also sees signs of slowing.

“Global supply chain pressures have eased more sustainably since late spring, as shipping times and costs fall. Commodity prices, though very high, have also been trending lower. And with high inflation and rising borrowing costs squeezing consumers’ real buying power, there are already early signs of slowing domestic consumer demand,” RBC said in a research note.

While a weakening of key inflation drivers doesn’t mean that the global economy is out of the woods, BMO said that lower commodity prices could make it easier for the Bank of Canada and the U.S. Federal Reserve Board to keep inflation expectations in check.

“In turn, it could lessen recession risks by removing some of the squeeze on consumers,” BMO added.

Economists will be looking for some confirmation of this in U.S. inflation numbers for July that will be released on Aug. 10.

BMO said a “big drop in gasoline prices is expected to cut the headline inflation rate back below 9%.”

Even so, central bankers are a long way from getting inflation to heel, the BMO report cautioned — “it’s going to take many such months to bring inflation back to even 5%, let alone the 2% target,” it said.

And RBC added that “a bigger pullback in consumer demand will likely be necessary to get inflation moving back toward the Federal Reserve’s 2% target rate.”

So, even as price pressures ease, interest rates will likely still rise, the economists said.