Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line
Inflation decelerated to 1.7% in July and the Bank of Canada’s preferred measures of core inflation rose slightly to 3.05%, in line with expectations. The BoC’s preferred measures of inflation are at or above 3% for the fourth consecutive month.
The breadth of inflationary pressures was relatively stable in July. The share of components of CPI rising by more than 5% increased to 19% from 18%, while the share of components increasing by more than 3% eased to 37% from 39%. We note that the share of components increasing by more than 3% remains well above historical norms for most of 2025 (see Fig. 1) and is higher than during periods when inflation is at target, suggesting some stickiness and broad inflationary pressures.
The recent trend in CPI’s monthly changes suggests that the momentum in inflationary pressures eased slightly in July. However, the 3-month annualized changes of many CPI components are above 3% (see Fig. 2), while the 3-month annualized change in headline CPI is at +2.3%. Despite the easing momentum, we expected the BoC’s measures of core inflation to remain at or above 3% until October.
The momentum of BoC’s core measures eased to 2.4% in July from 3.4%, the lowest in almost a year (see Fig 2). The measure had been at or above 3% for 8 of the 9 previous months. This suggests the stickiness in the core measures and price pressures could be easing.
We would also note that the momentum in goods prices jumped higher, as the removal of the Carbon Tax dropped out of the calculation. The momentum for services eased to 2.3%, after being above 3% since February, pointing to some easing in inflationary pressures.
Overall, the report suggests that headline inflation remains low but that underlying inflationary pressures remain elevated despite some easing. As such, the BoC is to remain concerned by its preferred measures of inflation remaining above 3%. The BoC is currently placing more emphasis on current inflation than on the amount of slack in the economy.
Today’s CPI number suggests that the BoC will continue its wait-and-see approach and keep its policy rate on hold at the September meeting. It would require significant deterioration in the economy for the BoC to cut its policy rate.
In Alberta, inflation eased to 1.3% in July. Higher shelter costs (+2.5% y-o-y) continued to be the main source of inflation, while lower energy costs, due to the removal of the Carbon Tax, continued to be a drag. Inflation excluding food and energy (a core inflation measure) eased marginally to 2.6%, remaining amongst the highest across provinces.
The Consumer Price Index (CPI) increased 0.3% m-o-m non-seasonally-adjusted in July and the inflation rate decelerated to 1.7%. A rise in prices for food, shelter, recreation, education, reading and household operations, furnishing and equipment were the main sources of increase in July.
A decline in clothing and footwear, transportation, and health and personal care put downward pressure on the CPI in July.
On a year-on-year basis, three of the eight major CPI components accelerated in July. Transportation costs were a drag on inflation, with prices 1.5% y-o-y lower in July compared to -0.6% in June. Transportation costs reduced inflation by 0.1 percentage points (pp) in July, with gasoline accounting for a 0.02pp reduction.
Shelter cost inflation rose to 3.0%, the lowest since March 2021, and remains the main source of inflation, contributing 0.1pp to headline inflation, mainly due to higher rent (contributing 0.04pp) and natural gas (contributing 0.04pp). Mortgage interest costs continued to decelerate (+4.8% y-o-y), contributing +0.3pp.
Food price inflation rose to 3.3% y-o-y, adding 0.1pp to inflation. Most of the acceleration is due to higher global prices for cacao and coffee, and an increase in fresh fruits.
In July, goods price inflation eased to +0.3% y-o-y and service price inflation eased to 2.8% y-o-y. Energy prices were 10.4% lower compared to the same month last year, as the removal of the Carbon Tax in April means lower energy price levels. Excluding food and energy, prices rose 0.3% m-o-m in July and eased to 2.5% compared to the same month last year. The Bank of Canada’s old measure of core inflation, CPI excluding the 8 most volatile components and indirect taxes, remained to 2.6% in July.
Looking at the BoC’s core measures of inflation, they rose in July and remained at the upper end of the BoC’s inflation target. CPI-Trim remained at 3.0%, while CPI-Median rose to 3.1% from 3.0%. As a result, the average of the two measures increased marginally to 3.1%, above 3% target.
By provinces, headline inflation was the highest in Quebec (+2.3%), Manitoba (+1.9%), BC (+1.7%), and Ontario (+1.6% y-o-y), while it was the lowest in New Brunswick (+1.1%), PEI (+1.2%), and AB (+1.3%).
Core inflation, or CPI excluding food and energy, is highest in New Brunswick (+2.9%), Quebec (+2.9%), and Alberta (+2.6%). It was the lowest in BC (+2.0%), and Newfoundland (+2.1%).
In Alberta, prices increased 0.2% m-o-m and inflation decelerated 1.3% in July. Four out of eight CPI components decelerated on the month. Shelter costs eased to 2.5 % y-o-y, from 2.8% y-o-y in June, and remained the main source of inflation, contributing 0.7pp. The decreasing pace of shelter cost inflation was due to a deceleration in owned accommodation (+3.6 y-o-y) and utilities (-5.7% y-o-y), especially natural gas (-28.4% y-o-y). Rented accommodations costs accelerated to 4.0% y-o-y.
Food prices inflation rose to 2.8% y-o-y from 2.5% y-o-y, contributing 0.5pp to inflation. This was the result of the same trend seen nationally.
Transportation costs were a bigger drag on inflation at -2.5% y-o-y in July, after decreasing 1.4% y-o-y in June, reducing headline inflation by 0.4 percentage points. This was the result of a 17.9% y-o-y drop in gasoline prices, due to the removal of the Carbon Tax in April and lower oil prices.
Goods price inflation was -0.3% y-o-y in July after +0.1% y-o-y in June. Services price inflation eased to 2.7% y-o-y from 3.1% y-o-y in June. Inflation excluding food and energy decelerated to 2.6%, remaining amongst the highest across provinces. Energy costs were a drag at -16.0% y-o-y compared to -12.9% y-o-y in June.
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Independent Opinion
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