Big six bank economists share their reaction to the latest inflation data
Canada’s inflation rate cooled in July, with headline CPI rising 1.7% year-over-year, down from 1.9% in June.
The data from Statistics Canada, released Tuesday, shows that prices increased 0.3% (unadjusted) and 0.1% (seasonally adjusted) on a monthly basis. The biggest drag came from energy, where gasoline prices tumbled 16.1% year-over-year, the steepest decline since 2020. Excluding gasoline, however, prices rose 2.5%, the same pace as in June.
However, core inflation remains stickier with the Bank of Canada’s preferred CPI-trim and CPI-median measures hovering around 3%, though shorter-term dynamics have softened with three-month annualized readings running closer to 2.4%.
Shelter inflation ticked higher to 3.0% from 2.9%, with rents up 5.1%, particularly in Ontario, Manitoba, and Saskatchewan. Food prices also accelerated, rising 3.4% year-over-year, led by double-digit increases for coffee and confectionery.
With headline inflation falling below the Bank of Canada’s 2% midpoint target but core measures still elevated, markets and economists are debating whether the bank could deliver a rate cut as soon as September.
Bank Reactions
TD noted the softer momentum in core inflation as a meaningful shift.
Andrew Hencic, director & senior economist wrote that while shelter costs remain a concern, “the deceleration in three-month rates of core CPI … does keep the path open to a September rate cut.”
With one more inflation print before the September BoC meeting, there is still more data for the central bank to digest.
CIBC’s Andrew Grantham was more definitive:
“An easing in inflationary pressures during July means that we have successfully cleared one obstacle on the path towards a potential September interest rate cut.”
He added that “today’s release is supportive of our current call for a 25-basis-point reduction at that time,” while cautioning that the Bank will want further confirmation from upcoming data before committing.
BMO’s Douglas Porter took a more cautious stance, stressing that core inflation “remains sticky, with the BoC’s two preferred measures both holding right around 3% for the fourth month in a row.” Still, he acknowledged that the three-month trend near 2.4% is encouraging:
“If that more recent pace in core is maintained, and the economy remains soft, we believe that will eventually set the stage for BoC cuts.”
RBC had expected inflation to remain at 1.9% in July, underscoring the persistent pressure in core measures. Economists Nathan Janzen and Claire Fan stressed that the BoC will likely “maintain current interest rates” given that “inflation is still running at the upper end of the target range and consumer spending remains relatively resilient.”
Scotiabank’s Derek Holt highlighted that headline inflation has eased faster than expected but warned the BoC will “likely require further evidence of disinflation in core measures before easing policy.” He described the September decision as finely balanced, hinging on both the next CPI release and labor market developments.
NBC Economics’ Jocelyn Paquet pointed to the growing divergence between headline and core measures. She noted that the decline in headline CPI was “almost entirely due to gasoline,” while rents and food inflation remain elevated. For them, this makes it difficult for the BoC to “justify an imminent rate cut without additional confirmation of broad-based disinflation.”
The next CPI release, along with updated growth and labor market data, will likely determine whether the BoC takes its first step toward rate relief this fall.
