Key Takeaways
- Canada’s annual inflation accelerated 3.0% in July from 2.8% in June, according to Statistics Canada.
- The surge was driven primarily by an uptick in gasoline prices.
- Contained core inflation measures should keep the Bank of Canada in a holding pattern, analysts say.
Canada’s inflation quickened in July as gasoline prices rose due to renewed fighting in the Iran war. But core inflation measures, which strip out the most volatile price categories, remained relatively subdued over the month, signaling little spillover into broader inflation, economists say
Against a backdrop of stable inflation, an improved economy, and continued uncertainty about the outlook of key US-Canada trade negotiations, analysts say the Bank of Canada will keep interest rates unchanged at its September meeting. Some economists say this pause could continue into 2027.
Canada’s Consumer Price Index rose to 3.0% in July from 2.8% in June, according to the latest Statistics Canada report. On a monthly basis, prices edged higher by 0.5%, reversing a 0.4% decline in June but considerably below the annual high of 1.0% seen in May.
Gasoline prices rose 25.7% in July from year-ago levels, compared with 20.5% the month before. Prices for travel tours were another key contributor to July inflation, rising 15.2% year over year, up from a 6.8% rate in June.
The Bank of Canada’s preferred core measures of inflation—which exclude volatile categories such as gasoline, groceries, and rent—also saw a slight upturn for the month. July CPI-trim climbed to 1.9% from 1.8% the month before, while CPI-median ticked up to 2.0% from 1.9%. Month-over-month core CPI, which only excludes food and energy, advanced to 1.9% from 1.8% the prior month.
Policymakers at the Bank of Canada are due to meet on Sept. 2. Economists expect the Bank to hold its interest rate steady at 2.25%, where it’s been since December 2025.
July CPI Report Key Stats
- Month-over-month CPI edged up to 0.5% from a 0.4% decline in June.
- On an annualized basis, CPI climbed to 3.0% from 2.8% in the prior month.
- CPI-trim advanced to 1.9% from 1.8% in June, while CPI-median tracked higher to 2.0% from 1.9%.
The following are excerpts from analyst commentary on the July CPI report.
Well-Behaved Inflation Supports Bank of Canada’s Rate Hold
“There’s a lot of push and pull on the growth side of the Canadian economy—for example, a powerful Q2 rebound still to be tested by ongoing trade uncertainty. But the inflation side is looking stable and well-behaved despite a bit of heat in July. We continue to see the Bank of Canada on hold for the remainder of the year.”
—Robert Kavcic, senior economist at BMO Economics
Subdued Core Inflation and No Rate Change Until Next Year
“The generally subdued readings for core inflation on a year-over-year basis mean that there’s no rush for the Bank of Canada to raise interest rates, and policymakers have plenty of time to assess oil price fluctuations, how the tariff situation plays out and whether the rebound in economic activity we are currently witnessing can be sustained. We continue to forecast no change in the overnight rate until around mid-2027.”
—Andrew Grantham, senior economist at CIBC Economics
Soft Inflation Backdrop Offsets Economic Strength to Keep the Bank on Hold
“While core prices rose at their strongest pace in almost a year in July, the key drivers were temporary factors, and the annual rate remained at the Bank of Canada’s 2% target. The key message therefore remains that a soft inflation backdrop is providing an effective counterbalance to stronger activity and labor market data with regard to the path for interest rates.”
—Bradley Saunders, North America economist at Capital Economics
Inflation Close to Target, but Tariff Deadline Adds Uncertainty
“Overall, the July report remains consistent with a relatively favorable combination of firming economic growth and underlying inflation close to target. The approaching US tariff deadline adds uncertainty, and the proposed measures would have significant consequences for some affected industries and regions. But their narrow coverage means they are unlikely to derail the broader economic recovery, with most Canadian exports to the US still protected by CUSMA exemptions. Against that backdrop, we continue to expect the Bank of Canada to keep the overnight rate unchanged through the remainder of 2026.”
—Abbey Xu, economist at Royal Bank of Canada
No Sign Inflation Entrenched Beyond Energy Fluctuations
“Measures of core inflation stayed firmly on target. This suggests that as of now, inflation remains a result of oil prices as opposed to being broadly entrenched in Canada’s economy. Looking ahead, we expect headline inflation to fluctuate with geopolitical uncertainty, while core inflation should stay stable.
“Even with steady core inflation, the Bank of Canada will most likely hold its key interest rate in September and through the end of the year to allow for recovery to take hold.”
—Tu Nguyen, economist at RSM
Inflation Bang on Target
“Inflation ticked up slightly in July due to higher prices at the pump and higher travel-related costs due to the World Cup. Core inflation remained bang on the Bank of Canada’s 2% target. We expect the Bank of Canada’s core inflation measures to drift a little bit above 2% in the coming months on some pass-through of higher energy costs to other prices in the economy.
“Short-term Government of Canada bond yields are up slightly on the higher inflation read, but given the travel impact on inflation should fade in the coming months, we aren’t too concerned that core inflation running slightly above 2% should spook the Bank of Canada into raising interest rates. The Bank of Canada has noted that Canada continues to deal with the confidence shock of on-again-off-again tariff threats from the US, which, given there is no deal as yet to avert the 50% tariffs set to come into effect on August 19, remains a clear downside risk to Canada’s economy.”
—Leslie Preston, managing director and senior economist at TD Bank
