Canada Inflation Research Brief

Inflation eases despite tariffs. Inflation dropped 20 basis points to 1.7 per cent in July. This can largely be attributed to a fall in gasoline prices following a ceasefire between Israel and Iran, as well as increased OPEC+ production. Excluding energy, inflation was higher at 2.5 per cent. While still showing some underlying price pressures, July’s softer core price data, along with revisions to previous months, has pulled down the three-month annualized rate of CPI-trim and CPI-median – a closely watched indicator by the Bank of Canada – to a more modest 2.4 per cent. Despite being above the monetary authority’s target, inflationary factors are likely temporary. For example, retaliatory tariffs on U.S. goods appear limited in scope, as sectors most exposed showed little signs of mounting price pressures. Protectionist U.S. trade policies do, however, sustain ongoing economic uncertainty for Canada, which may prompt the central bank to weigh the risks of slower growth over the inflationary impacts of tariffs.