Canada July CPI: Drops to Three-Year-Low, Paving Way for Another Cut Rate

Data Interpretation

Economic

Summary:

Canada's Consumer Price Index (CPI) fell to a 40-month low of 2.5% year-over-year in July, and the core CPI also eased, according to data from Statistics Canada on August 20. This paves the way for the Bank of Canada (BOC) to cut rates again.

On August 20 local time, Statistics Canada released its July CPI report:

The CPI rose 2.5% on a year-over-year basis in July, down from a 2.7% gain in June 2024. On a monthly basis, the CPI rose 0.4% in July, after falling 0.1% in June.

The core CPI rose 1.7% year-over-year in July, compared to a 1.9% increase in June. It rose 0.3% on a monthly basis, after declining 0.1% last month.

The report suggests that the deceleration in headline inflation was broad-based, stemming from lower prices for travel tours, passenger vehicles and electricity. The CPI rose 0.4% month over month in July as gasoline prices increased greatly. However, on a year-over-year basis, the increase was at the slowest pace since March 2021.

Breaking it down, prices for travel tours led to the deceleration in the all-items CPI, falling 2.8% year over year in July, following a 7.4% increase in June. The decline was largely due to a base-year effect, as prices for travel tours rose 15.5% month over month in July 2023 during the first summer without restrictions related to the COVID-19 pandemic.

Prices for passenger vehicles fell 1.4% year over year in July, following a 0.4% decline in June. This deceleration was driven by slower price growth for new vehicles (+1.0%) as inventory levels improved compared with July 2023. At the same time, prices for used vehicles fell 5.7% in July. Year over year, prices for shelter rose at a slower rate in July compared with June, with downward pressure coming from the electricity, mortgage interest cost, rent, and fuel oil and other fuels indexes.

Year over year, gasoline prices rose at a faster pace in July (+1.9%) compared with June (+0.4%). The increase was partially attributable to reduced supply amid a refinery shutdown in the Midwestern United States.

The BOC cut interest rates in the past two meetings. The inflation rate is now the closest to the BOC target of 2% since March 2021, boosting the possibility of another rate cut in September. Money markets expect another 25 basis point cut at the BOC's next meeting in September.

Canada July CPI

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Canada July CPI: Drops to Three-Year-Low, Paving Way for Another Cut Rate

Canada July CPI

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