Headline inflation kept easing in Canada in July to 2.5% year-over-year that was the lowest reading since March 2021.
The yearly readings for both food (2.7%) and energy inflation (0.4%) were little changed. Gasoline prices were slightly higher than both last month and July a year ago. That in turn means the moderation in headline CPI came from everything else – core ex-food and energy CPI dropped to 2.7% year-over-year in July from 2.9%.
In July, shelter inflation slowed to 5.7% year-over-year following persistent easing in CPI for mortgage interest costs (MIC) since fall of 2023. MIC inflation in July was still high, up over 20% from a year ago. Excluding that, headline inflation in Canada has been trending around the 2% target since January this year.
Rent inflation is another spot that pressures are easing but slowly – rent CPI in July was still elevated at 8.5% above last year. Meanwhile sluggish resale market performance is keeping a lid on inflation for owned home expenses, which remained negative on a yearly basis.
Bank of Canada’s preferred “core” CPI measures – CPI trim and median both grew at a slower pace in July, more in line with very small increases in the spring after having accelerated in May and June. On a month-over-month seasonally adjusted basis, the two measures averaged 0.1% above June.
The “supercore” CPI measure, i.e., BoC’s trim services ex-shelter index grew at a similarly slow pace, up 0.1% from June to leave the three-month annualized reading at 3%, down from 3.3% in June.
Among other components, a smaller than expected seasonal upswing in airfare and travel tours in July left prices for both dipping below levels a year ago. Improved auto inventory as supply chain knots continue to untie also led a persistent slowing in auto inflation. Prices for new cars were about 1% above last year and prices for used cars dropped to 6% below.
Bottom line: Today’s CPI print should be enough to quell concerns about sticky inflation pressures in Canada after two marginal upside surprises in May and June. Readings were unequivocally weak – with slowing evident among all core CPI measures. The scope of price pressures also continued to normalize – the diffusion index says the breadth of inflation in Canada is looking similar to pre-pandemic norm in 2019. That’s good news for the Bank of Canada, who is actively turning their focus onto a weakening economic backdrop and the disinflationary pressures that could stem from that moving forward. The hurdle for more BoC cuts this year is low and we continue to look for another 25 basis point cut at their next meeting in September.
This article was originally published on rbc.com/economics.
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