Tariff Threats Send Canada's Inflation Rate Soaring

Canada's inflation rate rose to three percent in July, driven by elevated petrol prices and increased costs in tourism-related businesses. The conflict in the Middle East, particularly the blockade of the Strait of Hormuz and the partial closure of Red Sea shipping routes, put upward pressure on gasoline prices, which were up 25.7 percent compared to July 2025.

Prime Minister Mark Carney said talks with US President Donald Trump's administration to avert new tariffs are ongoing, but declined to discuss details, citing the 'intense and delicate' nature of the negotiations. Canadian negotiators have been camped out in Washington seeking a deal to sideline the new tariffs while securing relief on sectoral levies that have hammered Canada's auto, steel, lumber, and aluminium industries for months.

TD Bank senior economist Leslie Preston said Monday's inflation data won't prompt an interest rate hike from the Bank of Canada, given the looming threats facing Canada's economy. 'Canada continues to deal with the confidence shock of on-again, off-again tariff threats from the US,' Preston noted, adding that there is no clear upside for Canada in this situation.

Carney said he expects to speak to Trump this week and has a plan in place to address the tariffs. The Bank of Canada's preferred inflation range is between 1-3 percent, but with the new tariffs looming, an interest rate hike seems unlikely in the near future.