Some say a July inflation cooldown makes a reduction more likely. Others still believe the Bank is done with cuts
Canada’s annual inflation rate eased to 1.7% in July, Statistics Canada reported Tuesday, marking a slowdown from 1.9% in June. While the decline was largely driven by a 16.1% drop in gasoline prices following the removal of the federal carbon tax, economists say stubbornly high costs for food and shelter complicate the picture for the Bank of Canada ahead of its September policy meeting.
On a monthly basis, consumer prices rose 0.3% in July, or 0.1% after seasonal adjustment. Excluding gasoline, inflation stood at 2.5%.
The Bank of Canada’s two preferred measures of underlying inflation – CPI-trim and CPI-median – remained steady at 3.0% and 3.1% year over year, respectively. But both measures have eased on a three-month annualized basis to 2.4%, the lowest since September 2024.
There's no clear answer, however, on whether the latest figures could see homebuyers and owners face some relief on interest rates next month. The Bank of Canada has suggested inflation needs to tick lower before it will consider lowering its benchmark rate, but economists aren't exactly rushing to predict a 25-basis-point cut on September 17.
CIBC senior economist Andrew Grantham said the softer trend in the core readings “removed one obstacle on the path towards a potential September interest rate cut.”
Doug Porter, chief economist at BMO, described the July report as relatively favourable but warned that persistent pressures in housing remain a concern. “There were no big surprises in the July inflation report, but we probably need a downside surprise at this point to prompt the BoC off the sidelines,” he said.
Porter highlighted that shelter prices rose 3% from a year earlier, the first acceleration since February 2024. Rent climbed 5.1% while mortgage interest costs, though easing slightly, were still 4.8% higher.
Food prices also kept climbing, led by a 28.6% surge in coffee and an 11.8% increase in cocoa products. Statistics Canada attributed the spike to poor growing conditions in key producing countries. Fresh fruit rose 3.9%, almost double the pace in June.
Some economists argue that the Bank may be done cutting for now. RBC economist Claire Fan said while July’s inflation easing was “welcome,” she expects the central bank to hold steady after already lowering rates earlier this year. “We don’t expect the BoC will cut again in this cycle,” she wrote.
National Bank’s Jocelyn Paquet said the report was “mildly positive” but “unlikely to be a game-changer.” She added that another rate reduction is likely only if unemployment continues to rise.
For BMO’s Porter, cooling inflation alone won’t be enough to spur a September rate cut. “We need some help in the inflation numbers,” he said. “We probably need a relatively sluggish jobs number as well.”
What are your thoughts on the recent analyses? Share your insights in the comments below.
