Canada inflation slows to 1.7%, rate cut hopes rise

Canada’s annual inflation eased to 1.7% in July, helped by falling gasoline prices, raising hopes of a potential Bank of Canada rate cut in September.

Statistics Canada reported that July’s consumer price index (CPI) rose 0.3% month-on-month, slightly above June’s 0.1%, while the annual inflation rate slowed from 1.9% to 1.7%.

Gasoline prices dropped 16.1% year-on-year, aided by higher oil output and the removal of the carbon levy, easing pressure on the CPI.

Core inflation, excluding volatile items like gasoline, increased 2.5% in July, with the three-month average of core measures falling to 2.4%, the lowest since September last year.

Economists view this as a signal that the Bank of Canada may consider a rate cut if the trend continues.

Rising costs in food and shelter partially offset gains from falling fuel prices. Food prices rose 3.3% year-on-year, while shelter costs, the largest CPI component, increased 3% in July.

Following the inflation report, the Canadian dollar dipped 0.23%, and two-year government bond yields fell to 2.704%. Money markets now price a 40% chance of a rate cut at the 17 September Bank of Canada meeting.

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