Gas Price Rebound Drives Inflation Higher in July

Economists predict that inflation edged higher in July due to rising gas prices. The Reuters poll of economists expects annual inflation rose by a tenth of a point to 2.9 per cent last month.

The increase in gas prices is attributed to the renewal of hostilities in the oil-producing region after a tentative ceasefire buckled in July. As a result, gas prices were 25 per cent higher in July than a year ago, compared with a 20 per cent annual hike in June, according to RBC economists Nathan Janzen and Claire Fan.

TD Bank senior economist Andrew Hencic noted that the volatility in energy prices has led to a meaningful contribution from gasoline and energy prices in this report. He also warned that sustained pressure on food inflation is expected due to the closure of the Strait of Hormuz, which stymied supplies of key agricultural inputs like fertilizer.

Despite the expected rise in headline inflation rate, Hencic does not expect it to knock the Bank of Canada off its stand-pat stance. The central bank has held its benchmark interest rate steady at 2.25 per cent in six consecutive decisions, and officials see their policy rate as being about right to guard against inflation while supporting modest economic growth.