Canada experienced a three percent increase in inflation in July, driven by escalating tensions in the Middle East leading to higher gas prices. Statistics Canada reported a 25.7 percent yearly growth in gas prices for July, up from the 20.5 percent increase seen in June. The Strait of Hormuz blockade and disruptions in shipping routes in the Red Sea were cited as factors pushing energy prices higher.
Economists had forecasted a slight uptick to 2.9 percent, making the actual three percent figure slightly above expectations. The rise in inflation was also influenced by increased costs for travel tours, particularly due to pricier accommodations and flights to U.S. destinations during the FIFA World Cup.
Furthermore, higher jet fuel costs contributed to a 12 percent year-over-year increase in air transportation prices in July, up from 9.6 percent in June. However, with the conclusion of the World Cup and a slight decrease in gas prices in August, some of the upward price pressure is expected to ease.
On the other hand, food prices helped offset inflationary pressures elsewhere, with inflation for store-bought food cooling 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 saw a 6.1 percent increase, especially driven by rising costs for berries and melons.
Despite the positive food price trends, Statistics Canada highlighted that grocery price inflation has exceeded the all-items consumer price index for the past 18 months. Core inflation measures, excluding volatile components like gas and food, rose 2.2 percent in July for the third consecutive month, slightly surpassing expectations. However, these measures remained within the Bank of Canada’s target range.
BMO’s Robert Kavcic pointed out that the stable inflation outlook should keep the Bank of Canada from adjusting its benchmark interest rate at the upcoming September decision. Both BMO and CIBC economists anticipate the central bank to maintain its current interest rate, given the manageable core inflation levels observed in July.