Canada’s inflation rate rose in July, with the Consumer Price Index (CPI) climbing 3.0 per cent year over year, up from 2.8 per cent in June. Prices also rose 0.3 per cent from June to July.
Gasoline prices were the biggest driver of the increase, jumping 25.7 per cent year over year. Tensions in the Middle East pushed shipping and fuel costs higher, while travel costs also climbed sharply. Airfares increased 12 per cent year over year, while travel tours were 15.2 per cent more expensive than a year earlier. Analysts attributed some of the increase to higher demand for flights, hotels, and rental cars during the FIFA World Cup this summer.
Grocery prices, meanwhile, rose more slowly. Food prices increased 3.1 per cent year over year, down from 3.9 per cent in June. Despite the slowdown, grocery prices have risen faster than overall inflation for 18 consecutive months. Shelter costs also eased, with rent increasing just 2.5 per cent year over year — the slowest pace since late 2021.
Core inflation, which excludes volatile items like gasoline, remained steady. The Bank of Canada’s preferred core measures, CPI-trim and CPI-median, held near 1.9 per cent to 2.0 per cent. Inflation excluding gasoline rose 2.2 per cent for the third consecutive month, suggesting that much of July’s increase was driven by temporary factors rather than a broad rise in prices.
Inflation also varied across the country. Ontario had the lowest inflation rate at 2.0 per cent, while Nova Scotia had the highest at 5.0 per cent, driven by higher electricity and rental costs. Core inflation remains close to the Bank of Canada’s 2 per cent target, and we expect the central bank to keep interest rates unchanged for the rest of the year.
Overall, the inflation outlook remains balanced. We view July’s increase as temporary. Higher gas and travel costs, driven by global events such as the World Cup and tensions in the Middle East, accounted for much of the rise. Underlying price pressures, as measured by core inflation, remain steady near the Bank of Canada’s target. This gives the central bank room to hold interest rates steady and assess how the economy evolves over the coming months before making any policy changes.
Independent Opinion
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