Inflation Slows in July
Canada’s inflation rate cooled in July, giving hope that the Bank of Canada (BoC) may consider cutting rates as early as September. According to Statistics Canada, consumer prices rose 1.7% year over year, down from 1.9% in June.
đźš— The biggest factor? A 16.1% drop in gasoline prices compared to last year.
đź“Š Without gas, inflation stayed at 2.5%, the same pace as May and June.
Market Expectations Rise
Traders reacted quickly to the news. The odds of a 25 bps (0.25%) rate cut in September rose to 40%, up from about one-third before the report.
💬 “This clears one hurdle on the path toward a September cut,” said Andrew Grantham of CIBC Capital Markets. Still, he noted more data on jobs and GDP will matter before the BoC makes a final call.
Economists Split 🤔
Not everyone agrees a cut is guaranteed:
- âś… More likely: Some, like Andrew DiCapua of the Canadian Chamber of Commerce, believe if this cooling trend continues, the BoC could ease rates. But he also warned tariffs may push prices back up.
- ❌ Too soon: Others, like Oxford Economics’ Michael Davenport, say underlying inflation is still too strong, while RBC’s Claire Fan reminded that “one month’s data doesn’t make a trend.”
Jobs and the Bigger Picture 👷‍♂️
The labour market adds another twist. Canada lost 41,000 jobs in July, pushing unemployment close to 7%. Economists at Desjardins see this as “slack” in the economy, which may give policymakers reason to cut.
Meanwhile, the BoC has already paused at 2.75% for three meetings straight after multiple cuts earlier this year. With inflation slowing and uncertainty lingering, the central bank is watching Canadian data more closely than the US Federal Reserve’s moves.
What’s Next? ⏳
The BoC’s next rate decision is set for September 17.
Economists like Bradley Saunders at Capital Economics suggest policymakers want to see more proof of a sustained slowdown in GDP and job data before committing to cuts.
All eyes are now on the September 17 BoC meeting. Until then, each new report on inflation, jobs, and growth will shape whether homeowners and buyers see lower borrowing costs ahead.