"Mildly" Positive July CPI Won't Be A Game Changer for Canada's Central Bank, Says National Bank

11:53 AM EDT, 08/19/2025 (MT Newswires) -- Canadian inflation was slightly weaker than expected in July, with the modest monthly increase causing the 12-month measure to fall by more than economists had anticipated, said National Bank of Canada.

Core measures were also weaker than forecasted, with the trimmed consumer price index falling unexpectedly by one-tenth of a percentage point over the month, noted the bank.

The recent momentum of core measures was another encouraging feature of the report, with both the trimmed CPI and the median CPI rising by 2.4% on an annualized basis over the past three months, it pointed out.

The sharp decline in gasoline prices (-16.1% year on year) certainly contributed to lower 12-month headline inflation, a phenomenon largely due to the abolition of the carbon tax in April. However, even excluding the effect of indirect taxes, inflationary pressures eased in July.

This slowdown occurred despite the first acceleration in the shelter inflation -- from 2.9% year over year to 3.0% -- since February 2024. Specifically, rents increased by 5.1% year on year, up from 4.7% the previous month. The bank isn't "overly worried" about this.

Knowing that market prices are reflected in CPI data with a significant time lag and bearing in mind the decline in asking prices observed in several major cities across Canada in recent months, National Bank is confident that inflation in this segment will decline going forward.

Another factor likely to drive shelter inflation down in the coming months is the moderation in mortgage interest costs. Inflation in this segment was already at a post-pandemic low in July and should continue to ease in the next few months, added the bank.

The intensification of price pressure in the food category was slightly more concerning, with Statistics Canada attributing it to "[u]nfavourable weather conditions in growing regions" leading to higher prices for commodities such as cocoa and coffee beans.

Regarding how Tuesday's CPI report may influence monetary policy, National Bank thinks that, while the BoC will likely view it as "mildly" positive, it's unlikely to be a game-changer.

As such, the bank believes that the BoC will only be confident enough to cut policy rates again this year if the unemployment rate continues to rise, which is National Bank's baseline scenario.

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