Canadian inflation accelerated slightly more than expected in July, driven by higher gasoline prices and airfares, but with core measures holding around the 2% target, economists see little cause for concern and expect the central bank to stay pat this year.
Canadian consumer price index edged up higher than expected in July as oil prices remained below their April and May peaks, with the ongoing Middle East conflict disrupting transportation through the Strait of Hormuz, said economists after Monday's CPI data. Gasoline prices averaged 26% above year-ago levels, up from a 20% increase in June.
"So far average prices in August are tracking close to July's level, which should see headline inflation hold at or close to July's print," wrote CIBC Capital Markets Senior Economist Andrew Grantham in a note. "The generally subdued readings for core inflation on a year-over-year basis mean that there's no rush for the Bank of Canada to raise rates."
The 3.0% headline CPI for July was a tick higher than consensus expectations, up from 2.8% in the prior month.
July's increase was also driven by travel costs, with more expensive flights and hotels in the US likely reflecting demand related to the FIFA World Cup, according to economists.
There was also an uptick in communications services, driven by a sharp rebound in telephone and internet prices.
The Bank of Canada's preferred core inflation measures averaged 2.0% annually in July, according to Desjardins strategist Tiago Figueiredo in a note. Other core measures also remained contained, while the share of CPI components rising more than 3% was broadly unchanged at around 38%.
"The outlook for core inflation is benign: any idiosyncratic boost from the World Cup will be in the rear view mirror," wrote KPMG Canada Senior Economist Daniel Hyun in a note. "Our analysis implies only limited pass-through from higher fuel prices, especially given that demand pressures are modest."
Economists broadly agree that July's higher CPI isn't a concern for the BoC, allowing the central bank to keep rates on hold for the rest of 2026.
"The inflation side is looking stable and well-behaved despite a bit of heat in July," wrote BMO Capital Markets Senior Economist Robert Kavcic in a note. "We continue to see the Bank of Canada on hold for the remainder of the year."