By Av Hundle, Founder, Managing Partner
AUGUST 19, 2025 | 2 min read
If you’ve been feeling like the economy can’t decide whether to tap the brakes or the gas—same. The latest data finally points in one direction: toward easier policy.
Canada’s “Just Dropped” Inflation Report: Headline Cools, Shelter Still Sticky
July CPI landed at 1.7% year-over-year, down from 1.9% in June. Gasoline did the heavy lifting (down double-digits), while ex-gasoline inflation held at 2.5%. The Bank of Canada’s preferred core measures (CPI-median ~3.1%, CPI-trim ~3.0%) are still near the top of the target band, but the direction is what matters—short-term core momentum keeps easing. Shelter remains the pesky part of the basket (up ~3.0% y/y), driven by rents. Markets took the print as another green light for a near-term cut.
Canada’s Jobs: A Summer Stumble
The July Labour Force Survey was rough: -41,000 jobs (mostly full-time), unemployment stuck at 6.9% as participation slipped, and youth unemployment spiked to ~14.6%. That combo screams “slowing demand,” not “overheating.” For a central bank that’s already within shouting distance of 2% headline inflation, a softening labour market tightens the case to ease.
U.S. Jobs Aren’t Bailing Us Out
South of the border, July payrolls added just 73,000 and the jobless rate ticked up to 4.2%. On top of that, earlier months were revised down materially—another sign momentum is fading. A cooler U.S. labour backdrop reduces the risk of imported inflation and gives the Fed more room to tilt dovish—spillover that matters for Canada’s rates complex.
What Markets Are Pricing Now
Before today’s CPI, odds for a September 17 BoC cut were modest; after the latest run of data, pricing edged up. Some desks pushed cut odds into the ~30–40% zone following the weak jobs print, and today’s softer inflation doesn’t hurt that trajectory. Two-year Canada yields dipped on the release—consistent with a market leaning toward easier policy.
