Inflation rate rose to 3% in July as gas prices climbed again

Canada's inflation rate rose to three per cent in July, as renewed hostilities in the Middle East sent prices at the gas pumps back up again.

According to new Statistics Canada data, the price of gas grew more quickly in July, at 25.7 per cent on a yearly basis, compared to June, when gas prices grew at a rate of 20.5 per cent.

The blockade in the Strait of Hormuz and partial closure of shipping routes in the Red Sea were to blame for the pressure on energy prices, the data agency said. A month before, peace talks brought a brief stop to the fighting in the Middle East, which helped cool gas prices and contributed to an ease in inflation to 2.8 per cent in June.

• Canada's inflation rate eased to 2.8% in June thanks to lower gas prices

The three per cent figure is just above what economists had been predicting. Heading into Monday's release, most economists had expected inflation would rise just a tick to 2.9 per cent.

Costs for travel tours also spiked in July, according to Statistics Canada, with pricier hotels and flights to U.S. destinations amid the FIFA World Cup contributing to the increase.

Higher jet fuel costs also put upward pressure on air transportation prices — which rose 12 per cent year-over-year in July, compared to 9.6 per cent in June.

Some of that upward pressure will be short lived, wrote BMO senior economist Robert Kavcic in a note to investors, as the World Cup is behind us and gas prices have come down slightly so far in August.

Prices for food, on the other hand, helped offset cost pressures elsewhere. Inflation for food bought from stores cooled to 3.1 per cent in July on a year-over-year basis, down from 3.9 per cent in the previous month.

Slower growth for fresh vegetables, chicken and cereal products drove the deceleration. Inflation for fresh fruit, meanwhile, accelerated to 6.1 per cent, as costs for berries and melons especially soared.

Despite the positive food figures for the month, Statistics Canada noted that grocery price inflation has now outpaced the all-items consumer price index for 18 months in a row.

BMO's Kavcic also noted that core measures of inflation — which strip out some of the more volatile components like gas and food — came in a bit hotter than expected in July.

Excluding gas, the consumer price index rose 2.2 per cent in July for a third consecutive month, Statistics Canada said. CPI-trim and CPI-median — two measures of core inflation that the Bank of Canada looks at — were a touch higher than expected, too, according to Kavcic.

Despite some of the shorter-term measures of core inflation picking up a bit, those measures were still within the Bank of Canada's target range, he said.

"The inflation side is looking stable and well-behaved despite a bit of heat in July," Kavcic wrote.

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 — and Kavcic and CIBC senior economist Andrew Grantham predict the same will happen come September.

Both agreed that July's core inflation measures were tame enough that the Bank of Canada should be in no rush to raise its benchmark interest rate in response to price pressures, with both BMO and CIBC expecting the central bank to stay on hold for the rest of the year.