Canada’s annual inflation rate climbed to the top of the Bank of Canada’s target range in July, driven mainly by a sharp rebound in gasoline prices, while underlying inflation remained close to 2%.
Canada’s annual inflation rate accelerated to 3 per cent in July, slightly above market expectations, as a rebound in gasoline prices pushed consumer prices higher amid renewed tensions between the United States and Iran, according to data released by Statistics Canada on Monday.
On a monthly basis, Canada’s Consumer Price Index (CPI) increased 0.5 per cent in July, also driven primarily by higher gasoline costs. Economists polled by Reuters had expected annual inflation to rise 2.9 per cent and monthly inflation to increase 0.4 per cent.
The latest reading puts inflation at the upper end of the Bank of Canada’s 1%-3 per cent target range.
Gasoline prices drive inflation higher
Gasoline emerged as the biggest contributor to the annual increase in consumer prices. Gasoline prices rose 25.7 per cent in July from a year earlier, accelerating from a 20.5 per cent increase in June.
Higher travel-related costs also contributed to inflation, with consumers paying more for travel tours, hotels and flights to the United States, particularly destinations that hosted the football World Cup.
However, the increase in headline inflation was partly offset by a slowdown in grocery price growth. Food purchased from stores rose 3.1 per cent year-on-year in July, compared with a 3.9 per cent increase in June.
More from BusinessDespite the moderation, grocery price inflation remained above headline CPI inflation for the 18th consecutive month.
Core inflation remains near 2%
The latest data showed that underlying inflation pressures remained relatively contained. The CPI-trimmed measure came in at 1.9 per cent, while CPI-median stood at 2 per cent, compared with 1.9 per cent for both measures in the previous month.
Economists have said that with core inflation remaining around the 2 per cent level, close to the midpoint of the Bank of Canada’s target range, the central bank is likely to keep its key interest rate unchanged for the remainder of the year.
Shelter costs also remained subdued, rising 1.3% in July, with the category including rents and mortgage interest costs.
Canadian dollar firms after inflation data
The Canadian dollar edged higher following the inflation release. It was trading up 0.17 per cent at C$1.3851 per US dollar, equivalent to around 72.20 US cents.
The July inflation figures will be closely watched by the Bank of Canada as it assesses whether the recent rise in headline inflation reflects temporary energy-price effects or a broader acceleration in underlying price pressures.
