Canada’s inflation rate rose to 3% in July as gas and travel costs climbed, while grocery price growth slowed.
Inflation rises more than expected
Canada’s inflation rate moved higher in July.
Statistics Canada says the Consumer Price Index rose 3% from a year earlier. That was up from 2.8% in June.
The increase was also a bit higher than expected. Most economists had forecast a July rate of 2.9%.
However, the rise may not be a major concern for the Bank of Canada.
Core inflation, which removes some volatile price moves, stayed at 2.2%. That was the same rate seen in May and June.
Gas prices lead the increase
Gasoline was a key reason inflation rose.
Gas prices were 25.7% higher in July than they were a year earlier. In June, the annual increase was 20.5%.
Oil prices have remained volatile. The swings have been linked to the conflict involving Iran and changes in hopes for a ceasefire.
As a result, fuel costs have moved sharply in recent months. That has also affected other prices.
Air travel was one example.
Air transportation costs rose 12% from a year earlier in July. That was up from 9.6% in June.
Travel costs also climb
Travel became more costly in July.
Statistics Canada said prices for travel tours rose 15.2% from a year earlier. In June, the increase was 6.8%.
Higher fuel costs played a role. At the same time, demand linked to the FIFA World Cup pushed up some hotel and flight prices, especially for trips from Canada to the U.S.
Therefore, travel added more pressure to the overall inflation rate.
Grocery price growth slows
There was some good news at the grocery store.
Food bought from stores rose 3.1% in July from a year earlier. That was down from 3.9% in June.
Fresh vegetable prices also cooled. They rose 3.9% over the year, compared with 9.2% in June.
Chicken prices showed an even smaller increase. Fresh and frozen chicken cost just 0.3% more than a year earlier. In June, the increase was 5.7%.
Cereal prices fell, too. They were 1.7% lower than a year earlier.
Fruit prices move the other way
Fresh fruit was a different story.
Fruit prices rose 6.1% from a year earlier in July. That was much higher than the 1.7% increase recorded in June.
Prices also jumped 4.7% in July compared with June. Statistics Canada says that was the biggest monthly increase since July 2011.
Berries and melons helped drive the rise.
What happens to interest rates?
The Bank of Canada aims to keep inflation between 1% and 3%.
July’s 3% reading sits at the top of that range. Still, economists say one higher reading may not be enough to change the Bank’s interest rate plans.
CIBC senior economist Andrew Grantham said the rise came mainly from gasoline and airfares. Meanwhile, core inflation stayed close to 2%.
Andrew DiCapua, principal economist at the Business Data Lab and Canadian Chamber of Commerce, also urged caution.
The bigger risk, he said, would come if higher fuel costs began to push up prices across the wider economy.
For now, the Bank of Canada can wait for more data.
The central bank’s next chance to review its benchmark interest rate is in September. Until then, inflation, oil prices and Canada-U.S. trade will remain key factors to watch.
