CPI Growth Slowed in July Despite Trade Conflict

In July, the Consumer Price Index (CPI) rose by 1.7 per cent (y/y). This was lower than June’s 1.9 per cent (y/y) increase.

Key insights

Despite the trade conflict with the United States, consumer price growth in Canada slowed in July. Canada’s CPI grew by 1.7 per cent (y/y), down from a 1.9 per cent increase in June. The speed of tariff pass-through to consumer prices hasn’t been immediate. Firms facing higher costs from tariffs face a trade off between lower profit margins and passing added costs to consumers through higher prices. Many automakers, for example, have absorbed the added cost of tariffs on vehicles, but this is likely unsustainable. In July, the price of purchasing a vehicle (as measured by the CPI) rose by 4.5 per cent (y/y). This was up from 4.1 per cent in June, suggesting that tariffs may be adding to vehicle prices.

Headline inflation is currently a misleading guide to underlying price pressures. The price of energy in the CPI’s year-over-year calculation will include the removal of the carbon tax until next April. This is keeping the headline inflation figure artificially low. Core inflation measures, on the other hand, remain elevated. In July, the Bank of Canada’s preferred measures of core inflation hovered between 3.0 and 3.1 per cent for the fourth consecutive month.

Looking ahead, a weaker economy could sap some pressure from price growth. Consumers are more wary of spending amid a soft labour market and volatile trade conditions, weakening economic growth. This could encourage businesses to hold off on price increases despite tariffs, which would moderate CPI inflation even as producer costs increase.

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