Canada Inflation Expected to Rise Amid Energy Price Volatility

Economists expect Canada's annual inflation rate to rise to between 2.9% and 3% in July, up from 2.8% in June. This uptick is primarily driven by a rebound in gasoline prices after a June dip, which occurred during progress toward peace between the United States and Iran. The reversal follows the collapse of a tentative ceasefire and renewed hostilities, with the closure of the Strait of Hormuz disrupting fuel shipments and agricultural inputs like fertilizer.

Andrew Hencic, a senior economist at TD Bank, noted that energy prices experienced a steep decline in June followed by an almost equally steep reversal in July. While pump prices were 25% higher than a year ago, analysts suggest core inflation measures will remain near the 2% target, indicating that energy shocks have limited pass-through into the broader economy.

These figures arrive as Canada faces a trade deadline on August 19, when U.S. Section 338 tariffs targeting approximately 5% of Canadian exports take effect. These tariffs are expected to impact 0.4% of Canada's GDP, particularly in the electrical equipment and apparel sectors.

Statistics Canada is scheduled to release the official consumer price index on Monday. This data will serve as the final indicator before the Bank of Canada's September 2 interest rate decision. Despite the expected inflation rise, analysts believe the central bank will maintain its benchmark interest rate at 2.25% due to elevated unemployment and stable core inflation.