Canada’s inflation rate climbed to three percent in July, driven by a surge in gas prices due to heightened tensions in the Middle East. Statistics Canada reported that the cost of gas increased by 25.7 percent on a yearly basis in July, up from a 20.5 percent growth in June. The disruption in shipping routes in the Red Sea and the blockade in the Strait of Hormuz were cited as reasons for the spike in energy prices.
Economists had predicted a slight increase to 2.9 percent, but the actual inflation rate surpassed expectations. Travel tour costs also rose in July, with more expensive hotels and flights to U.S. destinations during the FIFA World Cup contributing to the uptick. Additionally, higher jet fuel costs pushed air transportation prices up by 12 percent year-over-year in July.
While some price pressures are expected to be short-lived, such as the impact of the World Cup and recent gas price adjustments in August, food prices helped offset inflation in other areas. The inflation rate for food purchased from stores dropped to 3.1 percent in July, down from 3.9 percent in the previous month. Slower growth in fresh vegetables, chicken, and cereal products contributed to this decrease, while the inflation rate for fresh fruit increased to 6.1 percent due to soaring costs of berries and melons.
Despite favorable food price trends, Statistics Canada highlighted that grocery price inflation has outpaced the overall consumer price index for the past 18 months. Core inflation measures, excluding volatile components like gas and food, were slightly higher than expected in July. The consumer price index, excluding gas, rose by 2.2 percent for the third consecutive month.
The Bank of Canada’s upcoming interest rate decision on September 2 will be based on this latest inflation data. Economists anticipate that the central bank will maintain its benchmark interest rate at 2.25 percent, given the stable inflation outlook and the core inflation measures remaining within the target range. Both BMO and CIBC expect the Bank of Canada to keep rates unchanged for the remainder of the year.