Inflation Slows More Than Expected
Canada inflation cooled to 1.7% in July, easing from 1.9% in June, according to Statistics Canada. Lower gasoline prices, down 16.1% after the removal of the federal carbon tax, drove much of the slowdown.
Still, the story is mixed. While gas prices brought relief, food and shelter costs kept climbing. That contrast is now at the center of the Bank of Canada’s rate-cut debate.
Gasoline Relief, Grocery Strain
Groceries surged 3.4% year-over-year, led by coffee prices jumping 28.6% and cocoa climbing 11.8% due to global weather disruptions. Shelter added more pressure, with overall costs up 3%. Rent inflation hit 5.1%, while mortgage interest eased slightly but remained nearly 5% higher than last year.
On a monthly basis, CPI rose 0.3%, or 0.1% after seasonal adjustment, showing price pressures persist in key areas.
Core Inflation Trends Point Downward
Economists closely watch core inflation measures such as CPI-trim and CPI-median. In July, both held near 3%, but their three-month trend eased to the lowest in nearly a year. Excluding gasoline, inflation ran at 2.5%, underscoring that underlying pressures remain.
TD Bank economist Andrew Hencic noted the “softer trend” in core measures aligns with economic slack and weak job creation, which could push the Bank of Canada toward easing later this year.
Rate-Cut Debate Divides Experts
CIBC and Desjardins see the latest data opening the door to a September rate cut. They argue inflationary spikes tied to tariffs and supply disruptions have largely passed, reducing obstacles for the central bank.
However, not everyone agrees. RBC economist Claire Fan warns that with government spending set to rise, the Bank may hold off. BMO’s Douglas Porter flagged stubborn shelter inflation as another reason cuts could be delayed. National Bank’s Jocelyn Paquet added that only a rising unemployment rate may give the Bank confidence to act again.
What Comes Next
Markets had expected July inflation to cool only slightly to 1.8%. The stronger-than-expected dip adds momentum to the easing debate, but many analysts believe the Bank of Canada needs at least two or three more months of clear progress before moving again.
The next inflation update arrives September 16, just one day before the central bank’s policy announcement — timing that could prove pivotal.
Canada’s inflation story is far from over. Stay tuned to Maple Wire for the latest updates on rates and the economy.
