The economic landscape is shifting as inflationary pressures take a backseat, signaling a potential interest rate cut from the Bank of Canada that seems more obvious than ever.

According to Desjardins Group economist Royce Mendes, the fading effects of retaliatory tariffs are easing inflationary concerns. He believes that the central bank's approach could lean towards "dovish" language this week, aligning with Desjardins's prediction of further cuts aimed at lowering the overnight rate to 2.0 percent.

On the flip side, BMO's chief economist Douglas Porter cautions that while further rate reductions are likely, the journey will be gradual. He pointed out that a spike in gas prices next month could push headline inflation above the 2.0 percent mark, complicating the bank's decision-making.

Mendes highlights that as most counter-tariffs have now been removed, prices in sectors affected by tariffs are expected to stabilize, with some even witnessing declines in the months ahead. Recent statements from Sobey's parent company, Empire, indicated that grocery inflation was significantly lower than the national Consumer Price Index (CPI) in the last quarter.

Food prices overall climbed by 3.4 percent year-over-year, with notable increases in meat prices, particularly a 12.7 percent hike in fresh or frozen beef. Conversely, prices for fresh fruit dipped by 1.1 percent due to falling costs for grapes and berries.

Cellular service prices have also seen a sluggish decline, down 1.2 percent annually, though they rebounded slightly by 1.5 percent month-over-month. Travel-related expenses contributed to the easing inflation as package tours dropped by 9.3 percent and air travel costs fell by 7.6 percent compared to last August.

While some sectors are feeling relief, rent costs have surged by 4.5 percent year-over-year, alongside a 4.2 percent hike in mortgage interest rates and a 4 percent increase in passenger vehicle purchases.

Regionally, inflation is not uniform; Quebec recorded a 2.7 percent rise, while Nova Scotia saw a 2.2 percent increase. Overall, in July, the CPI fell to 1.7 percent year-on-year, primarily driven down by lower gasoline prices.

With all these factors at play, the market watches closely as the Bank of Canada prepares for what could be a pivotal moment in its monetary policy.