Canadian inflation pressures showed “welcome signs of easing” in July, according to RBC senior economist Claire Fan, after the annual Consumer Price Index slowed to 1.7% from 1.9% in June. Statistics Canada said Tuesday the deceleration was driven largely by cheaper gasoline, though grocery and shelter costs continued to accelerate.

The Bank of Canada's preferred median and trim core CPI measures again grew at a slower sub-0.2% rate in July, Fan said in a note Tuesday — smaller than expected. “We had looked for persistent strength in services components to again show up, echoing resilience seen in consumer spending broadly to date. Still, one reading doesn't make a trend and the diffusion index we calculate is still pointing to relatively broad-based inflation pressures across the consumer spending basket in July,” she said.

Statistics Canada reported that “prices for gasoline led the slowdown in the all-items CPI, falling 16.1% year over year in July, following a 13.4% decline in June.” The agency said prices were down 0.7 per cent from June as increased OPEC+ supply and a ceasefire in the Middle East pushed crude oil costs lower. Excluding gasoline, the CPI rose 2.5 per cent, the same as in May and June.

Other categories moved in the opposite direction. Grocery bills climbed 3.4% from a year earlier, compared with 2.8% in June, with sharp increases for coffee (+28.6%), confectionery (+11.8%) and grapes (+29.7%). “As of July 2025, Canadians were paying 27.1% more for food purchased from stores than they were in July 2020,” the agency said. Shelter costs also accelerated to 3% from 2.9%, the first pickup since February 2024, with rents rising 5.1% nationally.

Fan said the softer inflation numbers are “welcome” for the Bank of Canada but unlikely to trigger another interest rate cut at the Sept. 17 decision. “From the Bank of Canada’s perspective, the easing this month is welcome. However, they have also already cut interest rates significantly over the last year and will need to consider the potential impact of expected government spending increases as a more effective policy response to U.S. tariffs than further changes in interest rates,” she said. “Labour markets in Canada have softened but as we look not much further for a bottom of conditions, we don't expect the BoC will cut again in this cycle.”

BMO chief economist Doug Porter said the July report did not offer a strong enough signal for the central bank to ease policy further. “There were no big surprises in the July inflation report, but we probably need a downside surprise at this point to prompt the BoC off the sidelines,” he wrote in a note to clients.

Porter pointed out that shorter-term momentum is weaker: “The three-month core inflation readings now show an annualized rate of 2.4 per cent for July. And if that more recent trend in core inflation is maintained and the economy remains soft, that will eventually set the stage for BoC cuts.”