Canada experienced a rise in inflation to three percent in July, driven by escalating tensions in the Middle East that pushed up gas prices. Statistics Canada data reveals that gas prices surged by 25.7 percent on a yearly basis in July, compared to the 20.5 percent increase in June. The conflict in the Strait of Hormuz and disruptions in shipping routes in the Red Sea were cited as factors influencing the spike in energy costs.
Economists had predicted a slight uptick in inflation to 2.9 percent, but the actual three percent figure exceeded their expectations. Additionally, travel tour costs saw a surge in July, attributed to higher hotel prices and increased flights to U.S. destinations during the FIFA World Cup.
The rise in air transportation prices, up 12 percent year-over-year in July compared to 9.6 percent in June, was fueled by increased jet fuel costs. However, some of these cost pressures are expected to subside, with gas prices already showing a slight decrease in August following the conclusion of the World Cup.
While food prices helped offset inflation elsewhere, inflation for food purchased from stores dropped 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 inflation for fresh fruit accelerated to 6.1 percent, driven by soaring costs for berries and melons.
Core inflation measures, excluding gas and food, rose by 2.2 percent in July for the third consecutive month, slightly surpassing expectations. Despite this, core inflation measures remained within the Bank of Canada’s target range. Both BMO and CIBC economists anticipate that the Bank of Canada will maintain its benchmark interest rate at 2.25 percent in the upcoming September decision, considering the stable inflation outlook.