Canada Inflation Hits 3% in July on Gas Surge
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- Statistics Canada reported annual inflation accelerated to 3% in July, up from 2.8% in June and slightly above economist expectations
- Gas prices surged 25.7% year-over-year in July, accelerating from a 20.5% annual rise in June, as the June US-Iran ceasefire began unraveling and undid recent progress on oil prices
- Airfares jumped 12% year-over-year in July (up from 9.6% in June) on higher jet fuel costs, while travel tour costs spiked due to hotels and flights tied to FIFA World Cup games in US cities
- Grocery inflation cooled to 3.1% in July from 3.9% in June, though it has now outpaced the overall consumer price index for 18 consecutive months
- Bank of Canada has held its benchmark rate at 2.25% for six straight decisions; financial markets priced a near-99% probability of another hold at the September 2 decision
- BMO and CIBC economists forecast no rate change until at least mid-2027, with the August 19 deadline for new US tariffs targeting roughly 5% of Canadian exports seen as the bigger risk to growth
- Desjardins deputy chief economist Randall Bartlett said sustained energy price declines hinge on restoring oil flows through the Strait of Hormuz, contingent on "what's happening in the Middle East and the conflict with Iran"
Why it matters: The Bank of Canada enters its September 2 rate decision with headline inflation at 3% and core measures firming, but economists at BMO, CIBC, and Desjardins argue the August 19 US tariff deadline targeting ~5% of Canadian exports poses a larger economic risk than July's price spike — leaving Canadian borrowers with no near-term rate relief even as grocery inflation has outpaced headline CPI for 18 straight months.
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