Statistics Canada released its Consumer Price Index report for July yesterday, showing inflationary pressures accelerated as gas prices climbed again. Meanwhile, key measures of core inflation remained close to the Bank of Canada’s (BoC) 2% target, suggesting price pressures may be mostly contained to energy prices. Here’s some key takeaways from the report.

• Canada’s inflation rate rose to 3.0% in July, up from 2.8% in June. Excluding gasoline, prices were up 2.2% year-over-year for a third straight month, pointing to a narrower source of the acceleration.
• On a monthly basis, consumer prices rose by 0.5% in July, rebounding from the 0.4% decline in June.
• Gas prices did much of the heavy lifting in July, rising by 25.7% year-over-year compared to a 20.5% annual increase in June. The blockade of the Strait of Hormuz and a partial closure of Red Sea shipping routes pushed energy costs higher over the month.
• Grocery prices cooled but are still outpacing overall inflation. Food bought at stores rose 3.1% year-over-year, down from 3.9% in June, though that marks the 18th consecutive month grocery inflation has run hotter than the headline rate.
• Two key core measures of inflation tracked by the BoC, trim and median, were 1.9% and 2.0%, respectively, in July. The rates suggest recent inflationary pressures are not as broad-based and have mostly been limited to energy prices.  

Another month of gasoline-fuelled acceleration pushed inflation further from the BoC’s 2% target. While an above-target inflation rate could complicate the BoC’s interest rate decision, an improving labour market, signs of better economic activity and inflation that appears mostly contained to energy products may keep the BoC on the sidelines at its next meeting.

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