Canada’s inflation rate increased to three percent in July due to escalating tensions in the Middle East leading to a surge in gas prices. Statistics Canada’s latest data revealed a faster growth rate for gas prices in July at 25.7 percent year-over-year, compared to June’s 20.5 percent increase.
The Strait of Hormuz blockade and the Red Sea shipping route closures were cited as reasons for the upward pressure on energy prices, according to the data agency. In the previous month, a temporary halt in Middle East conflicts had cooled gas prices, contributing to a lower inflation rate of 2.8 percent in June.
The three percent inflation figure slightly exceeded economists’ predictions. Prior to the release, most economists had anticipated a rise to 2.9 percent. Travel tour costs also surged in July, with more expensive hotels and flights to U.S. destinations during the FIFA World Cup playing a role in the increase.
Rising jet fuel prices pushed air transportation costs up by 12 percent year-over-year in July, compared to 9.6 percent in June. BMO senior economist Robert Kavcic mentioned in a note to investors that some of these cost pressures would be short-lived, with the conclusion of the World Cup and a slight decrease in gas prices in August.
On the flip side, food prices helped offset inflationary pressures elsewhere. Inflation for store-bought food moderated to 3.1 percent in July from 3.9 percent in the previous month, driven by slower growth in fresh vegetables, chicken, and cereal products. However, fresh fruit prices surged by 6.1 percent, particularly for berries and melons.
Despite the positive food price trends, Statistics Canada highlighted that grocery inflation has outpaced the overall consumer price index for 18 consecutive months. Core inflation measures, excluding volatile components like gas and food, rose slightly higher than expected in July, according to Kavcic.
The Bank of Canada’s upcoming interest rate decision on September 2 will be based on these July inflation figures. Kavcic and CIBC senior economist Andrew Grantham predict that the central bank will maintain its benchmark interest rate at 2.25 percent, given the subdued core inflation measures in July. Both financial institutions anticipate the Bank of Canada to keep interest rates unchanged for the remainder of the year.
