In July, Statistics Canada reported that the annual rate of inflation had decreased to 2.5 per cent, the slowest pace of price growth since March 2021. The deceleration in price hikes was seen across various categories, including lower prices for travel tours, passenger vehicles, and electricity. Gas prices did put some upward pressure on inflation, rising 2.4 per cent month-to-month. Food inflation also cooled slightly, increasing 2.7 per cent annually compared to 2.8 per cent in June. The shelter component of the consumer price index, which has been a key driver of inflation, eased to 5.7 per cent in July from 6.2 per cent the previous month, with rents showing signs of cooling to 8.5 per cent.
Prices of passenger vehicles have been declining year-over-year for the past two months, with improved inventory helping to push down costs. Prices for new vehicles were up one per cent year-over-year, while used car prices fell 5.7 per cent annually. Travel tours, accommodation, and air transportation also saw year-over-year price declines in July, despite rising costs month over month. The base-year effect, which considers the impact of price movements from a year ago on annual CPI figures, played a role in driving down inflation for travel tours and electricity. These figures will be the Bank of Canada’s final look at inflation trends before its upcoming rate decision scheduled for Sept. 4. After back-to-back rate cuts in June and July, the central bank has brought its policy rate down to 4.5 per cent, following a rapid tightening cycle.
CIBC senior economist Andrew Grantham believes that the latest inflation report leaves the door open for further interest rate cuts by the Bank of Canada. With inflationary pressures fading and concerns about the weakening labor market growing, Grantham forecasts three more 25-basis-point cuts by the central bank at the remaining meetings this year. This is in line with the Bank of Canada’s recent efforts to address economic challenges and stimulate growth. The central bank has been closely monitoring inflation trends and adjusting interest rates accordingly to support a sustainable economic recovery. The annual rate of inflation, while still moderate, has shown signs of cooling in various sectors, giving policymakers more room to maneuver in response to economic conditions.
The slowdown in inflation in July reflects a more stable pricing environment for consumers as various sectors experience easing price pressures. The decrease in prices for travel tours, passenger vehicles, and electricity, along with cooling food inflation and shelter costs, contribute to a more moderate overall inflation rate. The base-year effect has also played a role in driving down inflation for certain categories. The Bank of Canada’s upcoming rate decision will be influenced by these trends, with further interest rate cuts being a possibility to address concerns about the weakening labor market. The central bank’s recent easing cycle has aimed to support economic growth while keeping inflation in check, and continued monitoring of these trends will guide future policy decisions. Overall, the latest inflation data indicates a more balanced pricing environment, with potential for further adjustments in interest rates to support economic stability.
