Canadian inflation continues to ease, moving closer to the Bank of Canada's target

Headline CPI inflation eased to 2.5% year-over-year (y/y) in July, aligning with consensus expectations and marking the lowest rate since March 2021. This deceleration was largely driven by base year effects, with lower price growth compared to last July for items like travel tours (-2.8% y/y), passenger vehicles (-1.4% y/y), and electricity (-0.8% y/y). However, an increase in gasoline prices (+1.9% y/y and +2.4% month-on-month) partially offset these declines.

Shelter prices continued to exert upward pressure on overall inflation, rising by 5.7% y/y, with rent costs climbing further (+8.5% y/y) and mortgage interest costs remaining exceptionally high (+21.0% y/y). Despite this, the pace of shelter inflation slowed slightly from 6.2% y/y in June.

The Bank of Canada's preferred core inflation measures dropped to 2.6% y/y in July, down from 2.7% in June. On a three-month annualized basis, the average core inflation rate decreased to 2.7% in July from 2.9% in June.