Gas Price Rebound Sparks Inflation Fears

Economists expect inflation to edge higher in July as consumers are hit with rising gas prices. Statistics Canada is set to release its consumer price index for July on Monday, and a Reuters poll of economists predicts annual inflation rose to 2.9% last month.

The increase in gas prices was driven by renewed hostilities in the oil-producing region, particularly between the United States and Iran. This led to a reversal in global oil prices, causing inflation to cool down in June. However, with the tentative ceasefire buckling in July, gas prices surged higher again.

According to Royal Bank of Canada economists Nathan Janzen and Claire Fan, while gas prices remain below their peaks in April and May, they are still 25% higher than a year ago. This is a significant increase from June's annual hike of 20%. The RBC economists expect inflation to rise to 2.9% in July.

TD Bank senior economist Andrew Hencic also expects the headline inflation rate to reverse course and end up around 2.9 or 3% last month. He notes that the decline in energy prices in June was steep, and the reversal in July is almost as steep. This suggests a meaningful contribution from gasoline and energy prices in this report.