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Canada's annual inflation rate rose to 3.0% in July from 2.8% in June, reaching the upper end of the Bank of Canada’s target range.
The increase was slightly larger than economists expected and was driven primarily by gasoline prices, which rose 25.7% from a year earlier. Travel costs also contributed, with airfares up 12% and travel tour prices rising 15.2%.
Statistics Canada attributed part of the increase to higher flight and hotel prices in U.S. cities hosting World Cup games. BMO Economics noted that gasoline prices had already declined during the first half of August and that the World Cup-related effect on travel costs should also fade.
Other parts of the inflation report showed continued moderation. Grocery prices rose 3.1% year over year, down from 3.9% in June, while shelter inflation eased to 1.3% from 1.5%.
Homeowners' replacement costs fell 2.1% from a year ago, reflecting softer home prices. Rent inflation slowed to 2.5%, its lowest rate since late 2021, while mortgage interest costs remained slightly below their year-ago level.
Core inflation remains near 2%
The Bank of Canada's preferred core inflation measures edged higher but remained close to 2%. CPI-trim rose to 1.9%, while CPI-median reached 2.0%.
BMO senior economist Robert Kavcic noted that several shorter-term core measures strengthened in July, with the average three-month annualized rate across four measures rising to 2.5% from 2.0%. However, he said inflation remained close to 2% over longer six- and 12-month periods.
TD senior economist Leslie Preston expects some of the increase in energy costs to pass through to other prices in the coming months, potentially pushing core inflation slightly above 2%. She said the temporary influence of travel costs, combined with the economic risks associated with U.S. trade uncertainty, reduces the likelihood.
Both TD and BMO continue to expect the Bank of Canada to keep its policy rate unchanged for the remainder of 2026.
The Bank of Canada's next interest rate decision is scheduled for September 2. |