EconoFACTS

August 17, 2026 | 08:57

Canadian CPI (July) — Is Core Still a Bore?

Economist

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

Canadian inflation came in as expected in July, although a bit warmer on the core metrics. Headline inflation rose to 3.0% y/y from 2.8% y/y in the prior month, not surprising given the rebound in gas prices in the month as U.S.-Iran tension flared up again. That should prove short-lived, however, as prices at the pump have since backed down through the first half of August.

Some World Cup impact was also still apparent. While accommodation prices backed off and reversed the prior-month increase within Canada, travel tours were strong and airfares rose 12% y/y, with StatCan noting price spikes to some hosting U.S. cities. That too, however, shall pass in August.

Food inflation is still an area of concern for Canadians, but gains in the grocery aisle were subdued in July on a seasonally-adjusted basis. Still, grocery prices were up a chunky 3.1% y/y in the month, and even the most amateur climatologists are bracing for the impact of the ‘super’ El Nino.

Shelter remains a positive area as the unwinding of the housing boom continues to trickle down through the CPI. Rent crumbled to 2.5% y/y in July, the weakest reading since late 2021. Mortgage interest costs continue to trend slightly below year-ago levels, while replacement cost was still running deeply negative at -2.1% y/y. The deflationary pressure from the latter could fade in the quarters ahead as home prices stabilize, but the broad weakness in rent and mortgage costs will persist.

Core inflation landed on the warmer side of expectations in July. The trim (1.9% y/y) and median (2.0% y/y) both rose a tick from the prior month and were a tick stronger than expected. Prices excluding food & energy were up 1.9% y/y, while the old-school BoC measure (CPIX) was 2.3% y/y. Shorter-term metrics were similarly warm, with the average of 3-month annualized rates across those four measures running at 2.5%, up from 2.0% in the prior month. And, it’s notable that the breadth of overall inflation is centred right around 2%, but the breadth of core components did shift more toward the high side in July. Taken altogether, we can’t ignore some of the firmer short-term core inflation momentum, but the big picture is that we’re still bouncing around 2% on a 6- and 12-month basis.

The Bottom Line: There’s a lot of push and pull on the growth side of the Canadian economy—for example, a powerful Q2 rebound still to be tested by ongoing trade uncertainty. But the inflation side is looking stable and well-behaved despite a bit of heat in July. We continue to see the Bank of Canada on hold for the remainder of the year.

Table 1 - Canada — CPI

(month/month % change)

Source: BMO Economics, Haver Analytics