Statistics Canada released Canada’s consumer price data yesterday, which showed that the annual inflation rate dropped in July. Inflation has been below the Bank of Canada’s (BoC) 2% target over the last four months, suggesting headline inflationary pressures are being largely contained. However, core inflation is proving to be relatively sticky near the 3% mark, making it harder for the BoC to make its next interest rate decision in September.

• Canada’s annual inflation rate was 1.7% in July. This was down from the 1.9% rate in June. July’s rate was also below the 1.8% economists had expected, based on a Bloomberg survey, which had heightened expectations the BoC may be closing in on another rate cut.
• The lower rate in July was driven by a steep fall in gasoline prices. This was partially offset by an acceleration in the price growth for food and shelter.
• The BoC’s two preferred core measures of inflation held near 3% in July. Price pressures remain broad-based, still putting some pressure on Canadian households. Elevated core inflationary pressures remain a concern for the BoC, particularly with the threat of tariffs pushing prices even higher.
• The BoC makes its next interest rate decision on September 17. Canada’s central bank considered a rate cut at its last meeting but held steady as it monitors the impact of tariffs on prices.

July’s data gave relatively mixed signals that the BoC will need to digest. The BoC may need to rely on the next set of labour and consumer price reports to help guide its next interest rate decision in September. Overall economic activity will also be closely analyzed by the BoC. Second-quarter economic growth will be released next week. It is expected to weaken compared to the first quarter amid trade disruptions with the US.

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