Inflation cools in a positive sign for the Bank of Canada

Canada’s annual inflation rate fell last month, hitting 1.7% and potentially strengthening the case for the Bank of Canada to cut interest rates at its next meeting in September.

Statistics Canada said on Tuesday that the consumer price index (CPI) cooled from a 1.9% reading in June thanks mainly to a big drop in prices at the pump as gasoline costs slid by 16.1% year over year.

Shelter costs, meanwhile, put upward pressure on inflation in July. Rent jumped by 5.1% compared with the same time last year, StatCan said, with mortgage interest costs increasing by 4.8% and property taxes and other special charges rising by 6.0%.

The overall drop marks a bigger monthly decline in inflation than analysts had expected, with consensus estimates published by BMO Economics indicating economists had anticipated a 1.8% reading last month.

That could give the Bank of Canada, which has left rates unchanged in its last three decisions, room to consider a reduction next month – although core measures remained stubbornly higher.

CPI-median rose to 3.1% while CPI-trim held steady at 3.0%. Both measures are closely watched by the central bank as preferred inflation gauges although another influential reading, the three-month moving average of the core rates, dipped to 2.43% from a prior 3.39%.

The Bank considered cutting rates at its last meeting on July 30 before ultimately opting against a reduction amid continuing concerns about the potential impact of ongoing trade tensions on the inflation outlook.

But while today’s news marks an encouraging sign that prices aren’t surging despite the continuing tariff chaos, the Bank will be closely watching another flurry of economic data between now and its September 17 decision.

Another inflation report is due a day before that announcement, while new data on payroll employment, job vacancies, and gross domestic product are all scheduled to arrive before the end of this month.

Source CMP
By Fergal McAlinden