Canada's inflation rate continues to cool in July, keeping BoC on track to cut interest rates

Statistics Canada said Canada's annual inflation rate slowed to 2.5 percent in July from 2.7 percent in June, supporting expectations that the Bank of Canada will cut its key interest rate for the third consecutive month next month.

The rise in the consumer price index (CPI) represents the slowest increase since March 2021, when inflation was 2.2 percent and picked up pace amid the COVID-19 pandemic. The slowdown was in line with analysts' expectations.

“Canadian inflation continued to decline in July, leaving the door wide open for further rate cuts,” CIBC economist Andrew Grantham wrote in a research note on Tuesday.

“With inflationary pressures easing but concerns about a weakening labour market growing, we continue to forecast the Bank of Canada will make three more 25 basis point rate cuts at its remaining meetings this year.”

The Bank of Canada cut its benchmark interest rate by 25 basis points in June and July, taking it to 4.5 percent. The central bank has indicated that further rate cuts could be on the horizon if inflation continues to ease.

On a monthly basis, the consumer price index rose by 0.4 percent in July. Seasonally adjusted, the consumer price index rose by 0.3 percent.

Inflation indicators closely watched by the Bank of Canada – CPI median and CPI trim – also declined. The CPI median slowed from 2.6 percent in June to 2.4 percent in July, while the CPI trim fell from 2.8 percent to 2.7 percent.

“The steady rise in year-on-year inflation is more than enough for the BoC to continue cutting interest rates, and the larger-than-expected decline in core policy measures cements a continued rate-cutting path through the end of the year,” Kyle Chapman, foreign exchange market analyst at the Ballinger Group, wrote in a statement.

“Markets were already bracing for a series of cuts, and today's number only adds to the pressure.”

Statistics Canada said the decline in headline inflation was broad-based and helped by lower prices for travel, cars and electricity. Gasoline prices rose 2.4 percent month-on-month in July, offsetting some of the downward pressure on the federal agency's basket of goods and services.

The story continues

Housing cost growth slowed from June on an annual basis, rising 5.7 percent from 6.2 percent in the previous month. The slowdown was helped by a decline in electricity prices, mortgage rates, rents, and heating oil and other fuel prices.

More to follow.

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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