Four economists break down Canada's latest inflation print and what comes next for rates
Canada's leading bank economists are sending a unified message to mortgage brokers following the release of July inflation data: the Bank of Canada (BoC) is not moving, and the numbers give it little reason to.
Andrew Grantham, executive director and senior economist at CIBC Economics in Toronto, wrote in a note published Tuesday that despite a modest acceleration in the headline rate, the underlying picture remains calm.
"CPI-trim and median both increased by 0.2% and were a tick higher than consensus expectations on a year-over-year basis, although at 1.9% and 2.0% respectively they continue to point to fairly subdued underlying inflationary pressures," Grantham wrote.
CIBC forecasts no change in the overnight rate until around mid-2027.
Robert Kavcic, senior economist and director at BMO Economics in Toronto, acknowledged some "firmer short-term core inflation momentum" in July but stopped well short of alarm.
"The inflation side is looking stable and well-behaved despite a bit of heat in July," Kavcic wrote. "We continue to see the Bank of Canada on hold for the remainder of the year."
Tariffs, not CPI, are the bigger concern
For Leslie Preston, managing director and senior economist at TD Economics in Toronto, the July print is less consequential than what arrives on August 19, the date US tariffs of 50% on a range of Canadian goods are set to take effect.
Preston flagged the trade deadline as "a clear downside risk to Canada's economy."
She added that "Short-term Government of Canada bond yields are up slightly on the higher inflation read, but given the travel impact on inflation should fade in the coming months, we aren't too concerned that core inflation running slightly above 2% should spook the BoC into raising interest rates."
Nathan Janzen, managing director at RBC Economics in Toronto, and his colleague Abbey Xu, also an economist at RBC Economics, wrote that July's report remains "consistent with a relatively favourable combination of firming economic growth and underlying inflation close to target," though the approaching tariff deadline adds uncertainty.
RBC expects the overnight rate to remain at 2.25% through the remainder of 2026, keeping the prime lending rate steady at 4.45%.
What the data actually showed
Statistics Canada reported Monday that the consumer price index (CPI) rose 3% year over year in July, up from 2.8% in June, with prices climbing 0.5% on a monthly basis.
Gasoline was the primary driver, rising 25.7% year over year as Middle East hostilities continued to disrupt energy markets.
Airfares rose 12% annually and travel tours surged 15.1%, with Statistics Canada attributing both partly to the FIFA World Cup effect, pressure economists expect to partially reverse in August.
Excluding gasoline, inflation held at 2.2% for a third straight month.
Shelter offered some relief, with rents falling 0.5% in July, pulling the annual rate to 2.5% from 3.5% in June.
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