July’s inflation rebound not enough to sway the Bank of Canada: economists

OTTAWA — Inflation reaccelerated in July after another volatile month for global energy prices. But economists argue the latest data was mild enough that the Bank of Canada can focus on looming trade risks rather than fears of spreading price hikes.

Statistics Canada said Monday that the annual rate of inflation rose to three per cent last month, up from 2.8 per cent in June and a tick above economists’ expectations.

Global energy volatility was primarily to blame for the increase. A ceasefire agreement struck between the United States and Iran in June started to unravel in July, undoing much of the recent progress in taming global oil prices.

Gas prices were up 25.7 per cent year-over-year in July, StatCan said, marking an acceleration from a 20.5 per cent annual hike in June.

Randall Bartlett, deputy chief economist at Desjardins, said inflation is tracking below the three per cent mark so far in August as gas prices ease and other one-off pressures from earlier in the summer recede.

But he said getting a sustained decline in global energy prices is contingent on fully restoring oil flows through the Strait of Hormuz, a critical shipping lane for Gulf exports.

“A big part of it is really up to President Trump and what’s happening in the Middle East and the conflict with Iran,” Bartlett said.

Higher jet fuel prices contributed to a 12 per cent hike in the cost of airfares last month, up from 9.6 per cent in June, StatCan said.

Travel tour costs also accelerated sharply in July, which StatCan attributed to more expensive hotels and flights to U.S. destination cities that were hosting FIFA World Cup games.

With the tournament concluded, economists weighing in Monday noted that these pressures are likely to unwind from the inflation data starting in August.

Helping to offset cost pressures in July was some relief at the grocery store. StatCan said inflation for food bought from the store cooled to 3.1 per cent in July, down from 3.9 per cent in the previous month.

Grocery store inflation has now outpaced the rise in the overall consumer price index for 18 consecutive months.

Bartlett said higher energy prices, a weak Canadian dollar and disruptions to key agricultural inputs like fertilizer from past blockades of the Strait of Hormuz will limit any relief for food inflation in the coming months.

“There’s a real possibility that food prices could continue to decelerate but still remain elevated compared to where they were, say, pre-COVID,” he said.

The July inflation figures mark the Bank of Canada’s last look at price data before its next interest rate decision on Sept. 2. The central bank has held its benchmark interest rate steady at 2.25 per cent in six straight decisions.

Markets and economists aren’t expecting the Bank of Canada to move off the sidelines anytime soon.

As of Monday at noon, financial market odds stood nearly 99 per cent in favour of an interest rate hold next month, according to LSEG Data & Analytics.

BMO senior economist Robert Kavcic pointed out in a note to clients Monday that there was some firmness in the central bank’s preferred measures of core inflation last month.

But even with some of the shorter-term measures of underlying inflation heating up, the long-run annual rates remain near the Bank of Canada’s two per cent target.

Between a couple of strong gross domestic product and jobs reports in recent weeks, and the Aug. 19 deadline for new U.S. tariffs just days away, Kavcic said BMO is comfortable with its call for the central bank to remain on hold next month and for the remainder of 2026.

“There’s a lot of push and pull on the growth side of the Canadian economy — for example, a powerful Q2 rebound still to be tested by ongoing trade uncertainty,” Kavcic said. “But the inflation side is looking stable and well-behaved despite a bit of heat in July.”

CIBC senior economist Andrew Grantham said in a note that monetary policymakers have plenty of time to gauge how oil price fluctuations and the tariff situation will resolve, and determine whether signs of an economic rebound will be sustained in the months to come.

CIBC forecasts no change in the benchmark interest rate until mid-2027.

Bartlett argued that the Bank of Canada will want to “keep its powder dry for the foreseeable future.”

If the Aug. 19 tariffs do come into effect — targetting about five per cent of Canadian exports — that poses a significant risk to economic growth, he said.

Any signs in Monday’s report that inflation could reignite are dwarfed by the risk to Canada’s economy should new U.S. tariffs materialize.

“We don’t think this is necessarily going to move needle all that much … given the downside risk to the outlook for the Canadian economy and inflation as a result of the ongoing trade tensions with the United States,” Bartlett said.

This report by The Canadian Press was first published Aug. 17, 2026.

Craig Lord, The Canadian Press