Canadian Consumer Price Index (July 2025)

Inflation moves lower in July, keeping door open for further rate relief 

• Headline CPI inflation for July came in at 1.7% year-on-year (y/y), cooling from the 1.9% in June and below expectations for a 1.8% y/y print. 
• Gasoline prices falling 0.7% on the month on lower geopolitical tensions and increased OPEC+ output were a drag on the index.
• Shelter price inflation rose for the first time since February 2024, rising 3.0% y/y from 2.9% in June. This was mostly attributed to a greater influence from the natural gas and rent indexes. The contraction in natural gas prices slowed in July, propping up shelter costs while rent inflation increased to 5.1% y/y, from 4.7% in June.
• The Bank of Canada's (BoC) CPI-trim measure was unchanged for the third month in a row at 3.0% y/y, while the CPI-median index ticked higher to 3.1% y/y. The CPI excluding food and energy ticked down to 2.5% y/y from 2.6% the month prior and the CPI excluding the eight most volatile components and indirect taxes (CPIX) also took a step back to 2.6% y/y (from 2.7% in June). All four of the core measures decelerated on a seasonally adjusted monthly basis in July, with the trim and median registering 0.18% m/m and 0.19% m/m, respectively, while the CPI excluding food and energy and CPIX were effectively flat at 0.06% m/m.

Key Implications

• Energy prices continue to do the heavy lifting on the top-line measure, but the softer trend in core inflation is what really jumps out from this report. The monthly pattern is suggestive of an economy where prices pressures are increasingly offset by growing economic slack.      
• On a go-forward basis this report builds on what we saw last month, slowing momentum in core prices as slack in the economy builds. Between February (when trade tensions really flared) and July the economy has added a total of 27k jobs, and now core inflation appears to be losing steam. All together this looks like the scenario the BoC highlighted as giving rise to the "need for a further reduction in the policy interest rate". From our lens, we think the BoC will have room to deliver more easing later this year as the economic slack continues to build and offset inflation pressure. 

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