Canada’s annual inflation rate dropped to 2.5% in July, aligning with economists’ projections and boosting the possibility of a third consecutive interest rate cut in September. According to Tuesday’s consumer price index report, the reduction in costs for travel tours, passenger vehicles, and electricity played a role in this overall decline. However, the real estate market remains under pressure, with shelter costs still driving inflation as Canadians grapple with rising rents and increased mortgage payments, making affordability a key concern for both renters and homebuyers.

The federal agency reported a slowdown in shelter price growth to 5.7 percent year-over-year, down from 6.2 percent in June, reflecting overall progress in reducing inflation, which has stayed below three percent since January. Andrew DiCapua, senior economist at the Canadian Chamber of Commerce, noted that while Canadians still face economic challenges, the Bank of Canada is expected to continue cutting interest rates, likely in September, to boost economic growth.

Improvements in global supply chains and high interest rates have cooled price growth across the economy. Grocery prices, once rising at double-digit rates, increased just 2.1 percent last month, while prices for goods like clothing and footwear have fallen. Despite fears of a housing market surge, it has remained subdued.

However, price pressures persist in services-producing sectors, driven by high wage growth. With slowing price growth overall, the Bank of Canada is likely to keep lowering interest rates, with Governor Tiff Macklem expressing concern about the risks of keeping rates too high for too long. The next rate announcement is scheduled for September 4.