Canada saw a rise in inflation to three percent in July, driven by escalating tensions in the Middle East leading to higher gas prices. Statistics Canada reported a faster growth rate in gas prices at 25.7 percent year-over-year in July compared to June’s 20.5 percent increase. The blockade in the Strait of Hormuz and disruptions in shipping routes in the Red Sea were cited as reasons for the upward pressure on energy prices.
Travel tour costs surged in July, with more expensive hotels and flights to U.S. destinations during the FIFA World Cup contributing to the overall inflation. Additionally, higher jet fuel costs pushed air transportation prices up by 12 percent year-over-year in July, compared to 9.6 percent in June.
While food prices helped balance out inflation pressures elsewhere, inflation for food purchased from stores moderated to 3.1 percent in July from 3.9 percent the previous month. Slower growth in fresh vegetables, chicken, and cereal products contributed to the deceleration, while inflation for fresh fruit accelerated to 6.1 percent due to rising costs of berries and melons.
Core inflation measures, excluding volatile components like gas and food, exceeded expectations slightly in July. The consumer price index, excluding gas, rose by 2.2 percent for the third consecutive month. Both CPI-trim and CPI-median, core inflation indicators monitored by the Bank of Canada, also showed slightly higher readings.
Despite the uptick in core inflation measures, they remained within the Bank of Canada’s target range, indicating stable inflation levels. Economists anticipate that the Bank of Canada will maintain its benchmark interest rate at 2.25 percent in its upcoming decision on September 2, given the manageable inflationary pressures. Both BMO and CIBC economists foresee the central bank maintaining a steady interest rate for the remainder of the year.