Canada saw an increase in inflation to three percent in July, driven by heightened tensions in the Middle East leading to a rise in gas prices. Statistics Canada data revealed a faster growth rate in gas prices in July, up 25.7 percent year-over-year, compared to the previous month’s 20.5 percent increase. The disruption in energy supply routes due to conflicts in the Strait of Hormuz and the Red Sea exerted pressure on energy prices.
Economists had anticipated a rise to 2.9 percent, but the actual inflation rate slightly exceeded expectations. Travel tour costs surged in July, particularly due to more expensive hotels and flights to U.S. destinations during the FIFA World Cup. Additionally, higher jet fuel costs pushed air transportation prices up by 12 percent compared to 9.6 percent in June.
Food prices helped offset inflation pressures elsewhere, with the inflation rate for food purchased from stores moderating 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 slowdown, while fresh fruit inflation accelerated to 6.1 percent, driven by increased costs for berries and melons.
Despite positive trends in food prices, Statistics Canada highlighted that grocery price inflation has surpassed the all-items consumer price index for 18 consecutive months. Core inflation measures, excluding volatile components like gas and food, were slightly higher than expected in July, with the consumer price index rising 2.2 percent for the third straight month.
BMO’s senior economist Robert Kavcic noted that these core inflation indicators remained within the Bank of Canada’s target range, indicating stable and manageable inflation levels. The Bank of Canada is expected to maintain its benchmark interest rate at 2.25 percent in the upcoming decision, as the core inflation measures in July suggest no urgency to adjust rates in response to inflation pressures.
