‘Data for Business’ is an effort of the Langley Chamber, in partnership with the Canadian Chamber’s Business Data Lab, to bring our members reports, stats, and analysis on economic and business data to help inform business and investment decisions. Read our latest update below:


Canadian inflation climbed back to 3% in July, up from 2.8% in June. Prices rose 0.5% during the month, or 0.3% after adjusting for seasonality. The acceleration was largely driven by higher gasoline prices and summer travel costs. Beneath the headline number, however, inflation remained remarkably stable. Excluding gasoline, inflation held at 2.2% for the third consecutive month.

More importantly for the Bank of Canada, its preferred core measures remained close to the 2% target and the 3-month average momentum of core is below the 2% target, suggesting that the energy shock has not yet spread broadly through the consumer basket.

Key Takeaways

Gasoline prices rose 3.6% in July and were 25.7% higher than a year ago, accelerating from 20.5% in June. Renewed disruptions in the Middle East put additional pressure on prices at the pump. This remains the main reason headline inflation is running well above underlying inflation—and the key question is how quickly gasoline prices ease.

Grocery inflation slowed sharply to 3.1% from 3.9%. Slower price growth for fresh vegetables and chicken, along with lower cereal prices, helped drive the improvement. Fresh fruit was the exception, with prices rising 6.1%. Grocery inflation has now exceeded headline inflation for 18 consecutive months, but July’s moderation is welcome news for consumers.

Shelter inflation eased further to 1.3% from 1.5%. Homeowners’ replacement costs fell 2.1% and other owned-accommodation expenses declined 1.8%, reflecting softer housing activity and borrowing costs. Rent inflation remained firmer at 2.5%.

Summer travel costs provided additional upward pressure. Travel-tour prices rose 15.2%, while airfares increased 12%. Higher hotel and flight prices to U.S. destinations coincided with World Cup matches, while elevated jet-fuel costs also pushed airfares higher.

Provincial overview

Inflation accelerated in every province except Ontario, where it remained unchanged at 2% – the lowest rate in the country. British Columbia came in just below the national average at 2.9%.

Implications

July’s 3% inflation rate begins the third quarter half a percentage point above the Bank of Canada’s 2.5% forecast. That is an overshoot, but it is not yet evidence of a broader inflation problem. Inflation excluding gasoline remains at 2.2%, and the Bank’s preferred core measures continue to average around 2%.

The Bank’s July forecast assumes that oil prices will decline, bringing inflation down through the second half of the year. There is still time for that projection to materialize. Improvements in grocery and shelter inflation should also help offset some of the pressure from energy prices.

The risk is that gasoline prices remain elevated and begin feeding more noticeably into other goods and services. That would make the Bank increasingly uncomfortable. For now, however, the July report supports keeping the policy rate steady at 2.25% while the Bank waits to see whether the summer increase in inflation proves temporary.

Commentary:

“Inflation is running a bit hotter than the Bank of Canada bargained for in July, but there’s no reason to hit the panic button just yet. Underlying momentum has been remarkably steady, and encouraging signs in food and shelter costs should help take some of the sting out of higher energy prices. If gasoline prices ease, inflation should have room to settle back toward the Bank’s forecast. The real risk is if pain at the pump starts spilling into broader price pressures. That would no doubt make the Bank [of Canada] increasingly uncomfortable. For now, though, one hotter-than-expected inflation print probably isn’t enough to move interest rates. The Bank still has time to wait and see whether inflation gets back on track.” - Andrew DiCapua, Principle Economist, Canadian Chamber of Commerce