Canadian Inflation Ticks Up, But Underlying Pressures Remain Contained

According to Royal Bank of Canada (RBC) economists Abbey Xu and Nathan Janzen, Canadian inflation rose to 3% year-over-year in July, largely due to higher energy costs. However, underlying measures such as CPI-trim and CPI-median stayed near the 2% target.

The increase in energy prices had a limited impact on broader prices, with no significant evidence of pass-through seen in the data. This suggests that the Bank of Canada (BoC) may hold rates unchanged through 2026, as previously expected by RBC economists.

While the July inflation report shows an uptick to 3% from 2.8% in June, the underlying inflation pressures remain contained. The firming economic growth and inflation close to target indicate a relatively favorable economic environment for Canada.