Canadian headline inflation came down sharply but that doesn’t tell the full story. Statistics Canada data shows the headline consumer price index (CPI) climbed 1.7% year-over-year (YoY) in July, down from 1.9% in June. The deceleration was almost entirely due to gas prices, leading to a modeling skew. A deeper dive into the numbers reveals grocery and shelter costs are hitting budgets harder, and the central bank’s preferred inflation measures remain alarmingly elevated.
Canadian Headline Inflation Slowed, But It Was Just Gas
Canada’s headline CPI deceleration is almost entirely a story about gasoline prices. Headline annual growth was 1.7% in July, but remains a whopping 2.5% YoY when gasoline is excluded. CPI ex-gas has been unchanged for the past 3 months, indicating inflation isn’t slowing down so much as the modeling bias demonstrates amplified vulnerability—a problem experts warned would happen.
Bank of Canada-Preferred Inflation Measures Remain Alarmingly High, Broad Price Growth Returns
The BoC’s preferred measures of core inflation aim to strip the most volatile modeling factors to reveal underlying, persistent inflation. Isolating the measures from volatility helps to create a clearer picture of whether it’s monetary policy driving inflation, or demand-side pressures.
Two of the BoC’s core measures—CPI-common (+2.6% YoY), and CPI-trim (+3.0% YoY)—remain elevated and significantly above the BoC’s 2.0% target. This shows inflation isn’t cooling as fast as the headline would lead us to believe.
CPI-median is the third, which accelerated to 3.1% YoY in July, up from 3.0% in June. This one is particularly problematic as it indicates the price acceleration is broad-based, a sign of monetary pressures. It’s also once again above the BoC’s 3% upper band of tolerance, where it’s now considered a serious problem.
Canadians Get Squeezed On Necessities As Grocery and Real Estate Accelerate
Canadian headline CPI component growth in July 2025.
Source: Statistics Canada.
Canadian households are seeing necessities return to price growth after a brief break—with grocery and shelter costs hitting budgets hard.
Grocery inflation accelerated to 3.4% YoY in July (vs +2.8% in June). The agency specifically called out the growth in this segment since 2020, as grocery prices have climbed a mind-boggling 27.1% since 2020—more than double the BoC’s 2% inflation target.
Shelter, the largest component of CPI, may be the most problematic area of price growth though. The CPI-shelter index climbed 3.0% YoY in July, accelerating from 2.9% in June. This was primarily driven by faster rent growth which came in at 5.1% YoY in July, up sharply from the 4.7% reported in June.
Mortgage interest helped suppress shelter inflation, with costs up 4.8% YoY in July, decelerating from 5.6% in June.
It’s worth reiterating the issue with Canada’s inclusion of mortgage interest in CPI. The cost of borrowing is determined by CPI, but the cost of borrowing is one of the largest contributors to CPI. Most countries don’t include mortgage interest since cutting rates would lower CPI mechanically, even as it stimulates demand and fuels inflation.
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