Canada saw a rise in inflation to three percent in July, driven by escalating tensions in the Middle East pushing gas prices higher. Statistics Canada reported a faster increase in gas prices in July at 25.7 percent annually, compared to the previous month’s 20.5 percent growth. The agency attributed the pressure on energy prices to disruptions in the Strait of Hormuz and the partial closure of shipping routes in the Red Sea.
Economists had predicted a slight increase to 2.9 percent, but the actual three percent figure exceeded expectations. Travel tour costs surged in July, with expensive hotels and flights to U.S. destinations during the FIFA World Cup contributing to the spike. Additionally, higher jet fuel costs led to a 12 percent year-over-year increase in air transportation prices.
However, some upward price pressures are expected to be short-lived, as gas prices have slightly decreased in August post the World Cup. Food prices helped offset inflation 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. Slower growth in fresh vegetables, chicken, and cereal products contributed to this deceleration, while fresh fruit prices, particularly berries and melons, soared by 6.1 percent.
Despite the positive food inflation figures, Statistics Canada highlighted that grocery prices have outpaced the all-items consumer price index for 18 consecutive months. Core inflation measures, excluding volatile components like gas and food, rose 2.2 percent in July for the third consecutive month. The CPI-trim and CPI-median indicators of core inflation were slightly higher than expected, indicating a stable inflation environment, according to BMO senior economist Robert Kavcic.
Looking ahead, experts suggest that the Bank of Canada is likely to maintain its benchmark interest rate at 2.25 percent, based on the subdued core inflation measures in July. Both BMO and CIBC anticipate that the central bank will keep interest rates unchanged for the remainder of the year, as the inflation outlook remains moderate. This latest inflation data will influence the Bank of Canada’s upcoming interest rate decision on September 2.