Canada’s Inflation Slows to 1.7% in July, Raising Hopes of a Rate Cut

Canada’s annual inflation rate cooled to 1.7% in July, down from 1.9% the previous month, according to Statistics Canada. The decline was largely driven by a steep drop in gasoline prices, though rising food and shelter costs kept overall price pressures elevated.

On a monthly basis, the consumer price index (CPI) rose 0.3%, following a smaller 0.1% gain in June. Analysts surveyed by Reuters had expected inflation to hold at 1.8% year-over-year and match the 0.3% monthly increase.

Gasoline prices fell 16.1% compared to July 2024, building on June’s 13.4% annual decline. Lower global oil prices, increased output from major producers, and the federal government’s removal of a carbon levy on fuel all contributed to easing pump prices—factors expected to keep inflation subdued in the months ahead.

Excluding gasoline, however, inflation remains firmer, with the CPI up 2.5% year-over-year. Core inflation, which strips out volatile components and is closely monitored by the Bank of Canada (BoC), averaged 2.4% on a three-month annualized basis, its lowest level since September 2024. Economists note that while this is encouraging, the measure can fluctuate sharply month to month.

Notably, 37.3% of the CPI basket is still running above 3%, highlighting that price pressures remain uneven. Food costs accelerated to 3.3% in July, while shelter costs—the largest component of the index—rose 3%, marking their first increase since early 2024.

Markets are now pricing in a greater chance of a BoC rate cut at the September 17 policy meeting, with odds rising to 40% from 32% before the inflation release. The central bank has kept its policy rate steady at 2.75% for three consecutive meetings as it weighs signs of slowing inflation against persistent strength in key categories like housing.

The Canadian dollar weakened following the data, while government bond yields dipped slightly, reflecting investor expectations of potential monetary easing.

For homeowners and prospective buyers, the shift in inflation trends could bring some relief if the BoC moves to lower rates this fall. Still, with shelter and food costs rising, affordability challenges remain an important consideration.

Source: Reuters