Canadian Inflation Moves Lower in July, Keeping Door Open for Further Rate Relief, Says TD

09:51 AM EDT, 08/19/2025 (MT Newswires) -- Canadian headline consumer price index inflation for July came in at 1.7% year-on-year, cooling from the 1.9% in June and below expectations for a 1.8% year over year print, said TD.

Gasoline prices fell 0.7% on the month, on lower geopolitical tensions and increased OPEC+ output, and were a drag on the index.

Shelter price inflation rose for the first time since February 2024, rising 3.0% year over year from 2.9% in June. This was mostly attributed to a greater influence from the natural gas and rent indexes. The contraction in natural gas prices slowed in July, propping up shelter costs while rent inflation increased to 5.1% year over year from 4.7% in June.

The Bank of Canada's CPI-trim measure was unchanged for the third month in a row at 3.0% year over year, while the CPI-median index ticked higher to 3.1% year over year. The CPI excluding food and energy ticked down to 2.5% year over year from 2.6% the month prior and the CPI excluding the eight most volatile components and indirect taxes (CPIX) also took a step back to 2.6% year over year versus 2.7% in June.

All four of the core measures decelerated on a seasonally adjusted monthly basis in July, with the trim and median registering 0.18% month over month and 0.19% month over month, respectively, while the CPI excluding food and energy and CPIX were effectively flat at 0.06% month over month.

Energy prices continue to do the heavy lifting on the top-line measure, but the softer trend in core inflation is what jumps out from this report, added TD. The monthly pattern is suggestive of an economy where price pressures are increasingly offset by growing economic slack.

On a go-forward basis, this report builds on what the bank saw last month, slowing momentum in core prices as slack in the economy builds. Between February -- when trade tensions flared -- and July, the economy has added a total of 27,000 jobs, and now core inflation appears to be losing steam.

All together this looks like the scenario the BoC highlighted as giving rise to the "need for a further reduction in the policy interest rate." From the bank's lens, Desjardins thinks the BoC will have room to deliver more easing later this year as the economic slack continues to build and offset inflation pressure.

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