Canada saw a rise in inflation to three percent in July, attributed to increased gas prices due to renewed conflicts in the Middle East. Statistics Canada reported a faster growth in gas prices in July, up 25.7 percent annually compared to the previous month’s 20.5 percent increase. The blockade in the Strait of Hormuz and disruptions in shipping routes in the Red Sea were cited as factors impacting energy prices.
The inflation rate slightly exceeded economists’ predictions, who anticipated a 2.9 percent increase. Travel tour costs surged in July, with higher hotel rates and flights to U.S. destinations during the FIFA World Cup contributing to the spike. Jet fuel expenses also pushed up air transportation prices by 12 percent year-over-year in July.
Despite these increases, BMO senior economist Robert Kavcic noted that some upward pressure would be temporary as gas prices had slightly decreased in August post the World Cup. In contrast, food prices helped offset inflationary pressures elsewhere, with the inflation rate for food purchased from stores dropping to 3.1 percent in July from 3.9 percent in the previous month.
Statistics Canada highlighted that grocery price inflation had outpaced the overall consumer price index for 18 consecutive months. Core inflation measures, excluding volatile elements like gas and food, rose by 2.2 percent in July for the third straight month. Kavcic mentioned that these core measures exceeded expectations slightly, but remained within the Bank of Canada’s target range.
The Bank of Canada’s upcoming interest rate decision in September would be based on the latest inflation data. Analysts expect the central bank to maintain the current benchmark rate of 2.25 percent, considering the stable inflation figures in July. Both BMO and CIBC economists anticipate no rush for an interest rate hike, suggesting the Bank of Canada will likely keep rates unchanged for the remainder of the year.