Canada experienced a rise in inflation to three percent in July, driven by escalating tensions in the Middle East that pushed gas prices higher. Statistics Canada data revealed that gas prices increased at a faster pace in July, growing by 25.7 percent year-over-year compared to the 20.5 percent growth seen in June.
The conflict in the Strait of Hormuz and disruptions in shipping routes in the Red Sea were cited as factors contributing to the upward pressure on energy prices. The temporary ceasefire in the Middle East a month earlier had helped lower gas prices and ease inflation to 2.8 percent in June.
The inflation rate of three percent slightly exceeded economists’ expectations, who had anticipated a rise to 2.9 percent. Costs for travel tours surged in July, attributed to higher hotel and flight prices to U.S. destinations during the FIFA World Cup.
Increased jet fuel costs led to a 12 percent year-over-year rise in air transportation prices in July, up from 9.6 percent in June. Economist Robert Kavcic of BMO mentioned that some of the price pressures would be short-lived as the World Cup ended, and gas prices have slightly decreased in August.
While food prices helped offset inflationary pressures in other areas, inflation for food purchased from stores decreased to 3.1 percent in July from 3.9 percent in the previous month, mainly driven by slower growth in fresh vegetables, chicken, and cereal products. On the other hand, inflation for fresh fruit accelerated to 6.1 percent due to soaring costs of berries and melons.
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, rose higher than expected in July. The consumer price index, excluding gas, increased by 2.2 percent for the third straight month, with CPI-trim and CPI-median also showing slight increases.
Despite these upticks in core inflation measures, they remained within the Bank of Canada’s target range. Analysts 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 stable inflation outlook.
Both BMO and CIBC economists believe that the mild core inflation figures in July suggest no urgency for the central bank to adjust interest rates in response to inflationary pressures. They predict that the Bank of Canada will keep rates unchanged for the remainder of the year.