Canada's inflation rate dips to 2.5% in July, lowest since March 2021 ...

Canada's annual inflation rate dropped to 2.5 per cent in July  — down from 2.7 per cent in June, Statistics Canada said Tuesday.

The national statistics agency said inflation increased at the slowest pace in more than three years, since March 2021.

The deceleration was attributed in part to lower prices for travel as compared to a year earlier, when travel tours, airline tickets and accommodation soared in the first summer without COVID-19 restrictions.

Passenger vehicles and electricity also saw a year-over-year decrease in price. 

The cost of groceries rose at a rate of 2.1 per cent, while shelter rose by 5.7 per cent. Rent costs rose by 8.5 per cent year over year, while mortgage interest was 21 per cent higher amid the hikes in interest rates that began in early 2022.

Prime Minister Justin Trudeau welcomed the news in a post on social media.

"We've still got a lot more work to do to make sure Canadians feel that relief in their bank accounts. But inflation is cooling, and that's welcome news," he wrote on X.

Challenges persist

David MacDonald, economist with the Canadian Centre for Policy Alternatives, pointed out that the high cost of things like groceries persists, despite a slowdown in how much they have increased since last summer.

This is what's known by economists as the base-effect, which refers to the impact of price movements from a year ago on the calculation of the year-over-year inflation rate.

"For regular folks, they still matter because prices aren't decreasing. It's just those increases happened more than a year ago," he said. 

Another Statistics Canada report earlier this week drove home the challenge of making ends meet for many Canadians.

The report found that, adjusted for an annual rate of inflation of 6.8 per cent, the 2022 median family after-tax income was four per cent lower than it was in 2021.

Statistics Canada said lone-parent families in which the parent was under 25 saw the largest decrease, falling 15.1 per cent in constant dollars to $24,690 in 2022.

Experts expect another rate cut

Overall, price pressures in Canada have steadily eased this year, bringing the annual inflation rate below three per cent since January.

The Bank of Canada has been encouraged by this progress and lowered its key interest rate at its last two decision meetings.

Governor Tiff Macklem has signalled more rate cuts are coming, as long as inflation continues to slow.

At the last interest rate announcement, Macklem said the governing council decided to lower its policy rate, in part to help the economy pick up speed again.   

WATCH | What the Bank of Canada governor says about inflation:

Tiff Macklem, governor of the Bank of Canada, says core inflation — which strips out volatile parts of the consumer price index — gives the bank a sense of where the trend is.

Its key interest rate now stands at 4.5 per cent.

Analysts said the latest inflation numbers pave the way for more rate cuts.

"Overall, the Bank of Canada will welcome today's report as it confirms that inflation continues to ease. Moreover, the breadth of inflationary pressures and the momentum of core inflation suggest further progress," said Charles St-Arnaud, chief economist at Alberta Central.

TD Bank senior economist James Orlando said there's "nothing stopping the bank from cutting rates by another 25 basis points."

"With inflation risks fading, the central bank's focus has pivoted to weakness in the rest of the economy," he said.

The central bank is scheduled to make its next interest rate announcement on Sept. 4.