Bank of Canada Stays the Course Amid Mild Inflation Bump

The latest inflation data in Canada showed a mild rebound in July, but economists believe it's not enough to prompt the Bank of Canada to raise interest rates. Statistics Canada reported that the annual rate of inflation rose to three per cent last month, up from 2.8 per cent in June and slightly above economists' expectations.

The increase was largely due to global energy volatility, particularly a ceasefire agreement between the US and Iran unraveling in July, leading to higher gas prices. Gas prices were up 25.7 per cent year-over-year in July, while airfares rose 12 per cent due to higher jet fuel costs.

However, economists point out that these pressures are likely to unwind as the summer months come to a close. Randall Bartlett, deputy chief economist at Desjardins, noted that inflation is tracking below three per cent in August so far as gas prices ease and other one-off pressures recede.

The Bank of Canada's next interest rate decision is scheduled for September 2, but markets and economists are not expecting a change. BMO senior economist Robert Kavcic said the central bank can focus on looming trade risks rather than fears of spreading price hikes.