The inflation rate in July cooled to 2.5 per cent, its slowest pace since March 2021 and down from 2.7 per cent in June, Statistics Canada said on Tuesday.

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The core measures of inflation, the data the Bank of Canada prefers to look at when making monetary policy decisions, also decelerated annually in July. Statistics Canada said consumer price index (CPI) common was 2.2 per cent, CPI-trim was 2.7 per cent and CPI-median was 2.4 per cent.

“As we had last July, significant increases in a lot of costs on a month-over-month basis, it’s good it wasn’t replicated this year,” said Dawn Desjardins, chief economist at Deloitte Canada. “It does give scope for the inflation rate to either continue to tick down because of that base-year effect or hold steady, I don’t think we’re seeing a lot of upward pressure on prices.”

Even shelter inflation, one of the main price pressures, slowed in July to 5.7 per cent year over year, down from 6.2 per cent in June, caused by downward pressures in rent, mortgage interest costs and fuel oil.

Year-over-year mortgage interest costs fell slightly to 21 per cent in July from 22.3 per cent in June. Similarly, year-over-year rent inflation slowed to 8.5 per cent in July compared to 8.8 per cent in June. Fuel oil and other oils rose by 3.5 per cent in July, compared to a 10.5 per cent increase in June.

Economists say the slowdown in inflation only reinforces the case for the Bank of Canada to cut its policy rate in September and at its meetings for the rest of the year.

The inflation reading keeps the “door to further interest rate cuts wide open,” Andrew Grantham, a senior economist at CIBC Capital Markets, said in a note after the data was released. “With inflationary pressures fading away, but concerns about the weakening labour market growing, we continue to forecast three further 25 basis point cuts by the Bank of Canada at the remaining meetings this year.”

David Rosenberg, founder and president of Rosenberg Research & Associates Inc., said the central bank is still behind the curve on cutting rates and should roll back its “John Crow-like” tightening cycle.

“The labour market and inflation have done more than just ‘normalize,’ and yet, even with two rate cuts under its belt, the Bank of Canada has a very long way to go to ‘normalize’ monetary policy,” he said in a note to clients.

The overall deceleration was primarily attributed to a slowdown in prices for passenger vehicles, travel tours and electricity, the latter two mainly due to base-year effects.

For example, travel tour prices rose 15.5 per cent month over month in July 2023 because it was the first summer without any COVID-19 restrictions. Similarly, for electricity, Alberta’s prices were considerably down in July from the previous year, when electricity prices increased month over month by 28.1 per cent.

Shelter inflation decelerated year-over-year to 5.7 per cent in July, compared to 6.2 per cent in June. This was caused by downward pressures in rent, mortgage interest costs and fuel oil.

Desjardins said that while the easing in shelter costs is welcome, rent and mortgage inflation remain high compared to last year.

“I think when we look at the market overall, it’s still pretty constrained in terms of supply,” she said. “Monetary policy is not necessarily going to be able to do a lot to ease those pressures; nonetheless, I think it is something they’re going to keep their eye on.”

Year-over-year gasoline prices, however, accelerated in July by 1.9 per cent from 0.4 per cent in June. Statistics Canada attributed this rise in prices to supply issues in the Prairie provinces. This was the main contributor to the monthly increase in CPI of 0.4 per cent, compared to June.

• Email: jgowling@postmedia.com

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