Inflationary Pressures Looked Relatively "Benign" in Canada for Third Month in A Row, Says Desjardins

09:34 AM EDT, 08/19/2025 (MT Newswires) -- The Canadian headline consumer price index rose 0.30% month over month in July, leaving the annual rate slowing from 1.9% to 1.7%, noted Desjardins after Tuesday's release of CPI data.

Excluding indirect taxes, a measure the Bank of Canada is watching since it doesn't include the impacts of the carbon tax elimination, inflation slowed from 2.5% year over year to 2.2%.

Other stripped-down measures of inflation also looked "muted," said the bank. Prices excluding food and energy rose just 0.065% month over month in seasonally-adjusted terms in July. As a result, the year-over-year pace of price growth for that metric slowed down to 2.5% from 2.6%.

The BoC's preferred core indicators of underlying inflation also looked cool, stated Desjardins. While the average annual rate of the trimmed-mean and median measures printed at 3.1%, that's largely because of the April reading, which the bank has pointed out looks like a huge outlier. The average three-month annualized rate for those two metrics, which no longer includes the April print, decelerated to 2.4% from 3.4% in June.

The latest inflation numbers reinforce the bank's thesis that many tariff-related price increases occurred in March and April, earlier than the BoC has been assuming. More recent price readings suggest that price growth in some of those categories is now normalizing.

Core goods prices rose just 0.06% in July, the weakest print since December of last year and core services excluding shelter prices were up just 0.16%. These readings suggest that neither goods nor services price growth should keep monetary officials from delivering further easing, according to Desjardins.

The bank continues to expect that the BoC will resume its rate-cutting cycle in September. Market participants are still underpricing the likelihood of such an outcome, with a handful of other analysts forecasting the central bank will remain on hold for the remainder of the year.

While Government of Canada (GoC) bond yields are lower on Tuesday, Desjardins believes there's still room to price in more in terms of BoC rate cuts for 2025.

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