CIBC on Economic Forecast, Markets' Reaction to Canada's July CPI

11:20 AM EDT, 08/19/2025 (MT Newswires) -- An easing in inflationary pressures during July means that Canada has successfully cleared one obstacle on the path towards a potential September interest rate cut, said CIBC.

While the slowing in headline inflation was broadly expected and largely reflected a sharper year-over-year decline in gasoline prices, core measures of inflation were also more muted than they appeared a few months ago, noted the bank.

That should give Bank of Canada policymakers greater comfort that they can cut interest rates and support the economy, although there is one more CPI release to come before they make that decision, stated CIBC.

Headline inflation eased a touch more than expected to 1.7% year over year from 1.9%, while the consensus was 1.8%, on the back of a 0.3% monthly increase in unadjusted prices, or 0.1% seasonally adjusted. The easing in the headline rate largely reflected a sharper year-over-year decline in gasoline prices this month.

Tuesday's data supports CIBC's belief that the acceleration in inflation seen earlier in the year was linked largely to one-off factors, including an earlier-than-expected pass-through from tariffs, and the slack that is evident in the Canadian economy is now starting to put renewed downward pressure on inflation.

If the August data -- released a day before the next BoC policy meeting -- shows a similar trend, the bank expects that policymakers will be comfortable cutting interest rates by 25bps at the September meeting.

Yields were down and the Canadian dollar (CAD or loonie) was weaker following Tuesday's data release, added CIBC.

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